JPMorgan analyst Jahangir Aziz has raised concerns about the US economy. He warned that the US dollar could weaken, and bond yields could rise due to increasing fiscal risks. These warnings come just before a key July 31st court hearing and the August 1st deadline for tariffs.
Court Case May Affect Tariffs
On July 31, a US federal appeals court will hear a case that could cancel some tariffs imposed under the IEEPA (International Emergency Economic Powers Act). The court is reviewing an earlier ruling that had rejected the idea of universal and reciprocal tariffs. If the court invalidates these tariffs, it could create a long period of uncertainty for global trade.
Inflation from Tariffs Already Visible
Although markets have managed to stay steady so far, inflation is showing signs of rising due to tariffs. According to Aziz, inflation for goods (excluding autos) has already reached 5.5%. He added that the full impact of tariffs on prices usually takes 2 to 4 months to show up in the data.
India Still in Talks, Unlike Others
India is still negotiating trade terms with the US and has not yet received any ultimatum letters, unlike countries like Japan and South Korea, which have already received such warnings. This shows that India’s trade talks with the US are ongoing and possibly more flexible.
Fiscal Deficit to Worsen in Coming Years
Aziz predicts that the US fiscal deficit (how much the government is overspending) will rise to 6.2% of GDP in 2025 and 7.2% in 2026. At the same time, he expects the current account deficit (difference between what the US imports and exports) to fall from 4% to 3.5%, mostly because of tariffs.
Dollar Could Get Weaker, Yields May Rise
Aziz explained that with a higher fiscal deficit and less borrowing from foreign countries, the US will need to generate around 1.5% of GDP from domestic savings. If this doesn’t happen, the country could face higher bond yields and a weaker dollar, which is a situation often seen in emerging markets.
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