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Topline
The 10% or greater tariffs on imports from most countries worldwide announced Wednesday by President Donald Trump earned a scathing reaction from the top U.S. economist at the U.S’ biggest bank, JPMorgan Chase, leading a cold response from Wall Street to Trump’s plans to upend the global trade order.
Key Facts
Trump’s new policies “take the economy perilously close to slipping into recession,” Michael Feroli, the chief U.S. economist of the country’s largest bank by assets and market capitalization, wrote to clients.
Trump’s speech was at the “very hawkish end of the range of expected outcomes” from his heavily teased tariff announcement, Feroli added, sharing several alarming forecasts to economic data based on the fresh tariffs.
Feroli outlined a dire picture for consumers.
Americans’ real disposable income could shrink during 2025’s second and third quarters, causing real consumer spending to simultaneously shrink, while personal consumption expenditures would still rise by an additional 1% to 1.5% this year.
That would bring PCE inflation to 4%, its highest level since spring 2023 and twice as high as the Federal Reserve’s 2% goal.
Surprising Fact
Wednesday’s tariffs pose the “largest tax increase” since the Revenue Act of 1968, which instituted a temporary 10% income tax to fund the Vietnam War, noted Feroli.
Big Number
More than 23%. That’s the average effective tariff rate on U.S. imports under the policies unveiled Wednesday by Trump, according to Feroli. That’s the highest rate since before World War I, according to JPMorgan research, posing a more than fourfold increase from the sub-5% tariff rates set for the last three decades.
Ubs Predicts Tariff-Driven Technical Recession
UBS economists led by Jonathan Pingle went one step further in their reaction to the tariff news, forecasting the U.S. will go into a technical recession, in which gross domestic product shrinks for two or more consecutive quarters. Even before the harsher-than-expected tariff news, confidence in the economy was already exhibiting signs of weakness, explained Pingle: “The expansion was already slowing, fiscal support waning, and consumption strength narrowing.”
Will Tariffs Cause Higher Unemployment?
UBS forecasts the unemployment rate could spike to 5.5% in the ensuing economic shock, up significantly from February’s 4.1%.
Key Background
Heading into Wednesday, an increasing cohort of economists warned the U.S. could slip into a recession largely based on the effects of tariffs. On Monday, Goldman Sachs upped its odds of a recession over the next year to 35%, but that was based on a forecasted 15% tariff rate, far more benign than what Trump opted for Wednesday.
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