JP Morgan cancels recession forecast this year, forecast for recession next year still up

Economists at JPMorgan Chase downplayed their bearish calls on Friday, joining a growing group of Wall Street leaders who now think a contraction is no longer inevitable.

Noting that risks remain high and further growth is likely to slow, the bank’s forecasters believe the data flow indicates a soft landing is possible. he comes in spite of a hike in interest rates Enacted with the clear intention of slowing down the economy and with several other significant adversities.

Michael Ferroli, chief economist at the nation’s largest bank, told clients that recent metrics are indicating growth of about 2.5% in the third quarter, compared with JPMorgan’s previous forecast of just a 0.5% expansion.

“Given this increase, we suspect the economy will soon lose momentum enough to slip into a mild contraction early in the next quarter, as we had previously forecast,” Ferroli wrote.

Along with the positive data, he pointed to a resolution to the debt ceiling impasse in Congress, as well as overcoming the banking crisis in March, as potential hurdles to overcome.

In addition, he also noted increased productivity due to the widespread implementation of artificial intelligence and improved labor supply even though appointments have softened in recent months.

hazard rate

However, Ferroli said the risk has not been completely eliminated. Specifically, he cited the threat of Fed policy that sees 11 interest rate hikes since March 2022. Those increases total 5.25 percentage points, yet inflation is still well above the central bank’s 2% target.

Feroli said, “Although a recession is no longer our ideal scenario, the risk of a recession is still very high. One way for this risk to materialize is if the Fed doesn’t hike rates.” “Another way that recession risks could materialize is if the usual delayed effects of earlier tightening are triggered.”

Feroli said he does not expect the Fed to start cutting rates until the third quarter of 2024. Current market prices are indicating that the first cut could happen by March 2024. CME Group Data.

The market valuation also points strongly to the bearish side.

A New York Fed Indicators Tracking the spread between the 3-month and 10-year Treasury yields points to a 66% chance of contraction over the next 12 months, as of Friday’s update. The so-called inverted yield curve has been a reliable recession predictor in data since 1959.

mood swings

However, the mood on Wall Street has changed regarding the economy.

Earlier this week, Bank of America also voiced displeasure over its bearish call, telling customers that “recent data has forced us to re-evaluate our forecast”. The company now sees growth of 2% this year, followed by 0.7% in 2024 and 1.8% in 2025.

Goldman Sachs has also recently reduced the probability of recession from 25% to 20%.

federal Reserve GDP Estimates in June pointed to the respective annual growth levels ahead of 1%, 1.1% and 1.8%. chairman Jerome Powell Said last week that Fed economists no longer foresee credit contraction there will be a slight recession this year.

— CNBC’s Michael Bloom contributed to this report.

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