JP Morgan Increases US Recession Probability to 35% Amid Labor Market Shifts

Sunrise, Fl – August 14- 2024

JP Morgan has revised its forecast for a potential US recession by the end of this year, raising the probability to 35% from the previous 25%. This adjustment is attributed to recent changes in labor market pressures. The revised forecast comes in the wake of a weaker-than-expected July employment report and a significant sell-off in yen-funded carry trades, which has impacted global equity markets.

The CME’s FedWatch tool indicates that markets are now fully anticipating a 50 basis point interest rate cut by the Federal Reserve in September. This shift reflects growing expectations that the central bank will act to support the economy amidst cooling inflation trends. Economists from JP Morgan observed that “US wage inflation is decelerating in a manner not seen in other market economies,” suggesting that easing labor market conditions are contributing to a decline in service price inflation and reinforcing the restrictive nature of the Fed’s current monetary policy.

JP Morgan forecasts that the Federal Reserve may adopt a more aggressive stance, potentially cutting rates by at least 100 basis points by the end of the year. This move would represent a departure from the Fed’s gradual approach to monetary policy.

In addition, Goldman Sachs has increased its recession probability forecast for the US over the next 12 months by 10 percentage points, bringing it to 25%. This reflects broader concerns about economic conditions and the potential for slower growth.

Federal Reserve officials are becoming increasingly confident that inflation is moderating enough to justify future rate cuts. They emphasize that decisions regarding the timing and magnitude of these cuts will be driven by economic data rather than market volatility. This perspective was echoed by several US central bankers who spoke recently, despite their varied views on the current economic situation. Their consensus highlights a focus on data-driven policy adjustments as they navigate ongoing economic uncertainties.

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