"Recession Risk Remains High"
Dollar Expected to Weaken... Rate Cut Timing Delayed
Stock Market Outlook Remains Positive
On June 25 (local time), JP Morgan warned that stagflation (rising prices amid economic stagnation) resulting from President Donald Trump's tariff policies could slow the growth of the US economy.
In its interim outlook report released that day, JP Morgan projected the US gross domestic product (GDP) growth rate for this year to be 1.3%. This is a downward revision from the 2.0% forecast presented at the beginning of the year.
JP Morgan stated, "The main reason for the downward revision is the stagflation shock caused by tariffs," and analyzed that "the risk of a recession remains high."
JP Morgan predicted that the US dollar would weaken as US economic growth slows. In addition, it anticipated that demand for US Treasury bonds from foreign investors, the Federal Reserve, and commercial banks would decrease, and that the term premium (the additional interest rate required for longer-term bonds) on US Treasuries could rise by 40 to 50 basis points (1bp = 0.01 percentage points). However, it does not expect a sharp surge in Treasury yields as seen in the first half of the year. Previously, in April, US Treasury yields soared as the market was shaken by President Trump's tariff offensive.
JP Morgan forecast that by the end of this year, the yield on the 2-year US Treasury note would reach 3.5%, while the yield on the 10-year note would reach 4.35%. As of that day, the current yields for the two Treasury notes stood at 3.76% and 4.27%, respectively.
JP Morgan predicted that, considering inflation caused by tariffs and the overall US economy, the Federal Reserve's benchmark interest rate would be lowered by about 100 basis points from December of this year through next spring. While the market is anticipating a rate cut in September, JP Morgan noted that the timing could be delayed due to the lingering effects of inflation. It also stated that if the pace of economic slowdown is faster than expected, the speed of rate cuts could accelerate further.
JP Morgan maintained a positive outlook on US stocks. It projected that, barring any major policy or geopolitical surprises, stock prices would head toward record highs, driven by strong fundamentals led by artificial intelligence (AI).
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