Trump tariffs to spur inflation and slow growth, warns JPMorgan's Kelly

JPMorgan Asset Management’s David Kelly said President-elect Donald Trump’s aggressive tariff plans would likely slow the global economy and put upward pressure on US inflation, flagging risks that have largely been overshadowed during the stock market’s post-election rally. 

“The first smoke signals suggest that the tariff approach will be very aggressive,” Kelly, the firm’s chief global market strategist, told Bloomberg Television Wednesday. “There are very few things that are a stagflation elixir — that can actually push inflation up and slow the economy down at the same time. Tariff for tariff will make the whole world poorer.” 

During the campaign, Trump suggested he could implement 60% tariffs on products from China and levies of 10% to 20% on goods from everywhere else. He dismissed concerns that they would harm the US economy, calling tariff “the most beautiful word” in the dictionary and at one point noting that the US boomed during the 19th century when it had high tariffs and no federal income tax.

It’s still unclear what specific policy plans Trump will push for, but his victory has left multinational companies rethinking global supply chains and discussing price increases to offset the cost. Investors, meanwhile, are considering the impact of greater protectionism on financial markets and US trading partners, including in Europe.  

Robert Lighthizer, a key adviser to Trump who was the US trade representative in his first administration, advocated protectionist policies in a recent opinion piece in the Financial Times.

“There’s going to be a lot of conflict over the tariffs,” Kelly said Wednesday. “If you punch somebody in the nose, they’re going to punch you back. That’s why they call it a tariff war."

Other strategists on Wall Street have issued similar warnings, and in the bond market yields have risen sharply as traders speculate that his tax-cut and tariff plans will put the brakes on the Federal Reserve’s interest-rate cuts. In the stock market, those concerns have largely taken a back seat to optimism that his policies will fatten corporate profits.

At TD Securities, strategists led Oscar Munoz and Gennadiy Goldberg expect the Fed to pause its rate cuts in the first half of the 2025 as central bank policymakers gauge the impact of Trump’s policies. Interest-rate strategists at JPMorgan have similarly dialed back their expectations for the Fed.

For Kelly, a clash between the Fed and the Trump White House is ultimately in the cards, given that Trump’s policies would likely be at odds with monetary policy that’s still focused on restraining the pace of growth and tamping down inflation. Fed Chair Jerome Powell last week however declined to comment on how Trump’s policies would shape the central bank’s future moves.

“The Federal Reserve is not going to assume or speculate or predict what policies on tariffs or fiscal policy is going to be,” Kelly said. “They’re going to have to have a fight at some stage, but I don’t think they want to pick it right now.”