JPMorgan increased its odds of a recession in the coming months by 10 percentage points as economic indicators begin to point to a slowing economy.
It now sees a 35% chance of a U.S. or global recession by the end of this year, chief global economist Bruce Kasman said in a client note Wednesday reported by CNBC, an increase from 25% earlier this year. The bank maintained a 45% probability of a recession in the second half of next year.
Consumer prices rose 3% in June, as inflation readings began to get back on track towards the Federal Reserve’s 2% target. But last Friday’s jobs report showed unemployment ticking up more than expected to its highest level in three years, a sign that efforts to wrangle inflation might have cooled the economy too much — news that sent markets into a tailspin Monday.
JPMorgan’s readjusted probability of a recession doesn’t mean, however, that a downturn is imminent. In fact, Kasman told clients that key indicators in the economy still appear to be humming along.
“More fundamentally, the vulnerabilities normally associated with a recession break — sustained profit margin compression or credit market stress, and energy or financial market shocks — are notably absent,” Kasman said.
To be sure, the market got some better tidings Thursday, with initial jobless claims coming in lower than anticipated and major indices on the rebound. And thanks to some “positive shifts,” including slowing inflation and an adjusting labor market, JPMorgan also lowered its projections for a higher-for-longer interest rate environment. The Fed is widely expected to carry out at least one rate cut starting in September.
Jamie Dimon’s two cents
JPMorgan Chase CEO Jamie Dimon has maintained his view that there’s a 35% to 40% chance that the U.S. will see a soft landing — a scenario where the Fed brings inflation down to its 2% target without tipping the economy into a recession.
“We don’t know if it’ll be a soft landing or hard landing, or all the things in between,” he said in an interview with CNBC Wednesday. “You know, I’ve always been a little skeptical that it’ll be soft. On the other hand, I’m hoping it’s soft.”
Dimon also brushed aside concerns spurred by Monday’s market chaos, noting that volatility and market changes are normal.
“Markets fluctuate. I think people overreact a little bit to the daily fluctuation of the market. And sometimes it’s for good reason, sometimes it’s virtually no reason,” he said. “And you saw this one, it came way down and went way back up.”