JP Morgan say Trump tariffs the largest tax increase since 1968 , US recession risk higher

JPMorgan economists cautioned on Wednesday that the sweeping tariff measures announced today could significantly disrupt U.S. economic momentum, raising the risk of a near-term recession. On a static basis, the newly unveiled policy is estimated to generate just under $400 billion in revenue — equivalent to roughly 1.3% of GDP — making it the largest tax increase since the Revenue Act of 1968.

In a note to clients, the bank projected that the measures could add between 1.0% and 1.5% to personal consumption expenditures (PCE) inflation in 2025, with the bulk of the upward pressure on prices likely to materialise in the second and third quarters.

Such a sharp rise in consumer prices would erode household purchasing power, potentially pushing real disposable income growth into negative territory during the middle quarters of the year. In turn, real consumer spending — the engine of U.S. economic growth — could contract, bringing the economy dangerously close to recessionary conditions.

Crucially, JPMorgan emphasised that this forecast does not yet incorporate the potential drag from falling exports and reduced investment spending, both of which are likely to come under further pressure. Reports of retaliatory actions from U.S. trading partners have already begun to surface, adding to the downside risks.

The bank also flagged the uncertainty surrounding the scope and duration of the tariffs, as well as the confusion in how the measures have been communicated. This could further weigh on business sentiment and capital expenditure, which were already softening in the face of tighter financial conditions.

While some degree of retrenchment in investment could help narrow the savings-investment gap and the current account deficit, JPMorgan noted that the near-term economic costs may outweigh any potential rebalancing benefits.

The bank said it would revisit its forecasts later this week as more clarity emerges around the policy’s implementation and global response.

This article was written by Eamonn Sheridan at www.forexlive.com.