JPMorgan lowers its recession odds as Trump strikes a temporary deal to drop tariffs on China

• JPMorgan is walking back its prediction it was 60% likely a recession would hit the U.S. in 2025. The bank wrote in a Tuesday note President Donald Trump’s temporary agreement scaling back tariffs on China while the two trading partners negotiate a trade deal could reduce the risk of a recession below 50%, although risks are still elevated.

President Donald Trump’s temporary deal lowering tariffs on China has not only lifted the stock market, it’s also dropped the odds of a recession significantly, according to JPMorgan Chase.

The bank said in a Tuesday note that in light of Trump’s China agreement, which lowered most tariffs on China to 30% from 145% for three months, the possibility of a recession to come later this year is now closer to a toss up.

“The administration’s recent dialing down of some of the more draconian tariffs placed on China should reduce the risk that the U.S. economy slips into recession this year,” JPMorgan Chief U.S. Economist Michael Feroli wrote in a Tuesday note. “We believe recession risks are still elevated, but now below 50%.”

JPMorgan’s latest prediction comes after it warned last month there was a 60% chance the U.S. would fall into a recession in 2025. The bank previously said it was caught off guard by Trump’s “extreme” tariff announcements during the so-called “Liberation Day” last month.

The bank now predicts the U.S. economy will grow 0.6% in 2025, a jump from 0.2% before the China tariff pause. JPMorgan's Feroli also forecasted the personal consumption expenditures price index (a key inflation measure), excluding food and energy, will rise less than expected to 3.5% from 4%, previously. 

The change of forecast comes as annual inflation measured by the consumer price index came in lower than expected at 2.3% Tuesday. After the temporary deal with China was announced, the stock market rallied Monday, with the Nasdaq leading the charge with a 4% increase that marked the start of a new bull market. The S&P 500 and the Dow Jones also rose by 3.3% and 2.8%, respectively. 

While the 90-day pause will remain in place as talks continue, Trump has signaled tariffs could surpass 30% if the U.S. and China fail to reach an agreement during the pause. Still, Trump said the tariffs on China would not return to the previous 145% level.

“They’ve agreed to open China, fully open China. And I think it’s going to be fantastic for China. I think it’s going to be fantastic for us, and I think it’s going to be great for unification and peace,” Trump said at the White House Monday.

Meanwhile, JPMorgan is still not entirely sure the economy will boom as much as Trump expects. 

“We still project a modest contraction in employment later this year, as labor demand is projected to slow even more than labor supply,” the note read. “Our updated labor market outlook is less demanding of immediate action to stem employment risks; for the Fed, we are pushing back the timing of the resumption of rate cuts from September to December.”

This story was originally featured on Fortune.com