JPMorgan Chase just issued a warning on the economic impact of the presidential election.
In a new interview with Bloomberg, JPMorgan’s Chief Global Strategist David Kelly targets former President Trump’s interest in increasing tariffs on imports to reduce income taxes.
If Trump triumphs over Biden and hikes tariffs significantly, Kelly says the former president will have cooked a recipe for stagflation.
“I do think what happened [in the debate] meaningfully increases the likelihood of a Republican sweep in November…
Now if they sweep, if you take Donald Trump at his word, you’ve got much higher tariffs, and tariffs are an elixir for stagflation. Tariffs slow growth and push up inflation at the same time.”
Kelly says the economy is weak enough that a policy shock could trigger a recession, citing Trump’s approach to immigration as another potentially negative catalyst.
“If we took him at his word on immigration, it would come to a halt because of deportation of unregistered immigrants or illegal immigrants. But I’m not sure if we take him at his word. I think history suggests it would be foolish to take him at his word on this stuff. But still, something to think about. I mean, some policy shock could absolutely tip this economy into recession.”
Kelly also points to the future of Trump’s 2017 tax cuts as a major question mark for the economy.
“The 2017 tax cuts, if Joe Biden is reelected, then some of those tax cuts will be extended beyond 2025 but not all of them.
If Donald Trump is elected, I expect that whole thing to go through. And if you add that to what the CBO is already looking at in terms of growth and the debt, the debt as a share of GDP by the early 2030’s is going to be about 135% as opposed to 122%, so you can have significantly more debt if we extend all these tax cuts, and that means a higher level of long term interest rates.”
Kelly did not specifically address his economic outlook under a second term for Biden.
Back in April, JPMorgan Chase CEO Jamie Dimon said he believed Biden’s current economic policies are “partially working.”
“When you spend that kind of money you’re going to have growth. And we needed some of it, like some of the industrial policy. I think the infrastructure thing is terrific. That was bipartisan.
I think some of the American public looks at [Biden’s infrastructure spending] like, what are they getting? If you go to rural America or inner cities, I’m not sure they feel like they’re being lifted up by this economy.”
