JPMorgan Raises 2024 Recession Odds to 35%
In a move that indicates growing concern over the health of the U.S. economy amidst recent market fluctuations, JPMorgan has adjusted its forecasts regarding the likelihood of an economic downturn. The bank now sees a 35% chance of the U.S. entering a recession by the end of this year, a significant increase from its midyear prediction. This update from JPMorgan’s chief global economist, Bruce Kasman, underscores the uncertainty pervading financial markets and the wider economy.
This revision is particularly noteworthy in the context of recent economic data and market reactions. JPMorgan’s assessment arrived in the aftermath of market trepidations sparked by a less-than-favorable jobs report last week, which stoked fears of an impending recession. However, the economist Bruce Kasman also referenced more recent data on the labor market, which seemed to alleviate some of those concerns, noting an unexpected drop in weekly jobless claims.
Kasman pointed to an improved outlook for U.S. inflation, propelled by a cooling labor market and diminishing wage inflation, which he describes as moving in a direction not observed in other developed economies. This adjustment in labor costs is now seen as more in line with the Federal Reserve’s inflation targets, prompting a reassessment of the potential for persistently high interest rates.
Interestingly, despite the Federal Reserve’s decision to pause rate hikes in its latest policy meeting, there is market consensus, reflected in Fed funds futures, anticipating a rate cut as early as September. This suggests a broader expectation of easing monetary policy to counterbalance potential economic slowdowns.
Yet, Kasman’s revised forecast does not signal an outright pessimism. He clarifies that the adjustment to a 35% probability is relatively modest and emphasizes that traditional indicators of recession risk such as credit market stress, sustained profit margin squeeze, and shocks from the energy or financial sector, remain markedly absent from the current economic landscape.
This viewpoint is echoed by other Wall Street institutions, with Goldman Sachs, for instance, recently increasing its own recession probability forecast to 25% from a previous 15%. However, Goldman Sachs also maintained that a recession could be averted, highlighting the Federal Reserve’s toolkit, which includes rate cuts and bond purchases as mechanisms to stave off a downturn.
As we navigate these uncertain times, JPMorgan’s latest analysis contributes to a wider conversation on the U.S. economy’s trajectory. The bank’s revised recession odds reflect a cautious yet nuanced understanding of the interplay between labor market dynamics, inflation trends, and monetary policy. For investors and policymakers alike, these insights offer critical guidance amidst the evolving economic landscape.
