J.P. Morgan expects the U.S. economy to experience stagflation due to tariffs, with a recession probability of 40%.

Jin10 data June 26, according to a report from Morgan Stanley analysts on Wednesday in a mid-year outlook research report, U.S. tariff policies may drag down global economic growth and reignite inflation in the U.S. The bank believes that the probability of the U.S. falling into recession in the second half of this year is 40%. The economic growth rate of the U.S. is expected to be 1.3% in 2025, lower than the 2% forecast at the beginning of the year. "The stagflation effect caused by tariff hikes is the reason for our downward revision of this year's GDP growth expectations," the report states. Morgan Stanley is bearish on the dollar, citing a slowdown in U.S. economic growth, while growth-supporting policies outside the U.S. will boost other currencies, including emerging market currencies. The bank expects the Federal Reserve (FED) to cut interest rates by 100 basis points between December and spring 2026. Analysts state that if a recession occurs or the economic slowdown exceeds expectations, it will trigger a more aggressive rate-cutting cycle. However, the bank remains optimistic about the U.S. stock market, citing that despite uncertainties in policy, consumers and the economy remain resilient.