JPMorgan CEO Jamie Dimon has issued his own warnings.
Vanguard Group, one of the world’s largest asset managers, has lowered its projections for the economy and raised its outlook for inflation and unemployment in response to the President Donald Trump’s tariffs.
“Something had to be the catalyst,” Vanguard Global Chief Economist Joe Davis wrote in recent commentary. “After a steady, upward march of U.S. equities valuations, especially those of large growth companies, something had to precipitate a reversal. We know now, after three days of sharp global stock market losses and dizzying volatility, that the April 2 U.S. tariff announcements were that catalyst.”
Vanguard has now revised down its GDP growth rate for 2025 to below 1%, which is roughly a percentage point lower than previous projections.
“That would put the economy at a potential “stall speed” that raises the specter of recession,” wrote Davis. “We are dancing with recession.”
What’s not clear is how long the tariffs will remain at the announced levels, or if they will be negotiated lower, Davis said.
“By our calculations, and with the potential for further tariff announcements, the average effective U.S. tariff rate could rise above 25%, well above the baseline we had anticipated at the start of the year,” Davis wrote.
However, given the prospect of tariff negotiations, Vanguard sees the effective tariff rate settling just below 20%, up from the previous effective tariff rate of below 5%. An effective tariff rate at 20%, however, still poses significant economic ramifications.
Stagflation heading our way?
Davis also discussed the possibility of stagflation — a scenario where economic growth slows, yet inflation and unemployment rates rise.
That seems to be in the cards, as Vanguard anticipates core inflation to rise to 4% by the end of 2025, up a percentage point from previous projections. At the same time, Vanguard sees unemployment rising to just above 5% by year-end, which would be the highest in a decade outside of the COVID-19 era.
“The combination of stagnating activity and rising prices introduces the prospect of stagflation that would be a strong headwind for both stocks and bonds,” Davis wrote. “Given their dual mandate, the Federal Reserve may be challenged to lower rates meaningfully amidst a push and pull of lower growth and higher inflation. In the end, the Federal Reserve is likely to lower rates in the event of the labor market weakening further.”
Due to the wildly overvalued markets, a downturn in stocks was inevitable, said Davis. The only wildcard was when it would happen.
“This day was coming because it always comes. How we’ve prepared and what happens next is of the utmost importance. Don’t chase the markets; in times like these, they’re wild and unpredictable,” Davis wrote. “Eventually, and not necessarily in this order, volatility subsides, markets bottom, and dances end.”
JPMorgan’s Dimon sees recession as “likely outcome”
JPMorgan Chase increased its likelihood of recession to 60% this week, after boosting it to 50% just last week.
In his Q1 letter to shareholders, JPMorgan Chase warned of the negative effects of the Trump tariffs.
“The recent tariffs will likely increase inflation and are causing many to consider a greater probability of a recession. And even with the recent decline in market values, prices remain relatively high. These significant and somewhat unprecedented forces cause us to remain very cautious,” Dimon wrote in the shareholder letter.
Dimon hopes that, after negotiations, the tariffs will have some long-term positive benefits. But his “most serious concern” is how it will affect America’s economic alliances.
On Wednesday in an interview with Fox Business, Dimon reiterated that a recession is a “likely outcome.”
While markets aren’t always right, they are in this case due to the uncertainty.
“I think this time they are right because they’re just pricing uncertainty at the macro level and uncertainty at the micro level, at the actual company level, and then how it affects consumer sentiment,” he said.
