Unleash Prosperity Senior Fellow EJ Antoni analyzes the republican tax bill and the state of the American economy on Varney & Co.
JPMorgan has reduced its forecasts for the probability that the US economy has entered a recession this year after President Donald Trump has entered into an agreement to temporarily lower the prices he imposed on the imported goods of China.
The president announced on Monday that an agreement had been concluded to reduce “reciprocal” prices that he imposed to reduce the overall tariff rate on Chinese products from 145% to 30% for 90 days while negotiators work to finalize a longer -term agreement. The Chinese government, in turn, has reduced its reprisals on American products by 125% to 20% for the period of 90 days.
“The recent administration numbering on some of the most draconian prices placed on China should reduce the risk that the American economy will slip this year,” said Michael Feroli, an American economist in JPMorgan. “Conditioned on the current rates in force indefinitely, we are now planning real GDP growth for this year at 0.6% (4q / 4q), against 0.2% before the latest tariffs.”
“We believe that the risks of recession is always added, but now below 50%,” noted Feroli. Previous forecasts for the company have put the risk of recession this year at 60% in the days which followed the announcement of the “reciprocal” price of the Trump administration.
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JPMorgan lowered its probability of recession to less than 50% in the middle of the price break, after higher prices pushed it to 60% last month. (Photographer: Mark Felix / Bloomberg via Getty Images / Getty Images)
JPMorgan’s analysis has provided that the personal consumer expenditure index (PCE) – The favorite inflation gauge of the Federal Reserve – will be 3.5% at the end of this year, less than the estimate of 4% before the price break, but greater than the projection of 2.2% of the start of the year.
Reading the PCE of 3.5% would be much higher than the Fed inflation objective of 2%, which makes Fed more likely to delay interest rate reductions unless the labor market begins to deteriorate. The unemployment rate was 4.2% in April and JPMorgan plans that the unemployment rate will reach 4.8% in the second quarter of 2026.
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Prices are taxes on imported goods which are paid by importers, which generally transmit higher costs to consumers thanks to higher prices. (Photo of Qian Weizhong / VCG via Getty Images / Getty Images)
“We are still planning a modest employment contraction later this year, because the demand for workforce should slow even more than the supply of workforce,” wrote Feroli. “Our prospects updated in the labor market are less demanding of immediate measures to stem employment risks; for the Fed, we reject the time to take over the rate cuts from September to December.”
He added that the bank sees three other sequential rate drops after December, which would reduce the target beach in the rate of federal reference funds to a range of 3.25% to 3.5% in the second quarter of 2026.
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Chinese President Xi Jinping and President Donald Trump interrupted the higher rates for 90 days while negotiations continue. (Xinhua / Ju Peng via Getty Images / Getty Images)
The report noted that changes in prices on Chinese goods lowered the average effective rate rate of approximately 24% to around 14%, a significant reduction, although it remains much higher than the rate of an effective rate of 2.3% which prevailed in 2024.
“A price is a tax, and therefore compared to previous hypotheses, this can be considered a tax reduction of almost $ 300 billion,” wrote Feroli. “Most of this tax was likely to have been carried by American consumers in the higher price form.”
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“The setback of this tax should bring a certain relief to consumption expenses, and in our modeling is sufficient to switch the growth prospects in the second half of a modest contraction to modest growth,” he added.
