JPMorgan Chase & Co. has projected the chances of a US recession by the end of the year to 35%, marking a significant increase from the 25% probability estimated at the beginning of last month. The revised projection reflects concerns about a sharper-than-expected weakening in labor demand and early signs of job losses, according to JPMorgan economists led by Bruce Kasman.
JPMorgan’s heightened recessionary outlook is partly driven by their reassessment of the interest rate outlook. The bank has lowered its prediction for the likelihood of the Federal Reserve and other central banks maintaining high interest rates for an extended period to 30%, down from 50% just two months ago. Despite this adjustment, JPMorgan maintains a 45% probability of a recession by the second half of 2025.
This shift in recession risk comes as inflation pressures in the US continue to ease. In response, JPMorgan expects the Federal Reserve to implement two rate cuts, each by half a percentage point, in September and November. This adjustment mirrors a similar move by Goldman Sachs Group Inc., which now forecasts a 25% probability of a recession within the next year.
The recent disappointing jobs report and shrinking manufacturing activity in the US, coupled with dismal forecasts from major tech companies, have heightened recessionary concerns. The Nasdaq 100 and the Nasdaq Composite experienced a correction last week, further amplifying these worries. The weak jobs data also triggered the “Sahm Rule,” a historically accurate recession indicator.
While the Sahm Rule suggests a recession is underway, economist Claudia Sahm and other experts argue that the current rise in unemployment might be an exception, potentially linked to the pandemic’s aftermath rather than a broader economic downturn.
Traders are now increasingly confident in the Federal Reserve’s response to economic concerns. The CME’s FedWatch Tool indicates an 88% probability of the US central bank cutting benchmark rates by 50 basis points in September, compared to an 11% chance last week. This shift reflects the growing consensus that the Fed will prioritize supporting the economy amidst these challenges.
