JPMorgan Raises Recession Probability Amid Market Turbulence

JPMorgan has increased its forecast for the likelihood of a U.S. recession this year, reflecting growing concerns about the country's economic stability following recent market volatility. The bank now estimates a 35% chance of a recession by the end of 2024, up from its previous 25% prediction. This adjustment was shared by Bruce Kasman, JPMorgan's chief global economist, in a note to clients.

Despite this increase, the bank has maintained its 45% probability for a recession by the second half of 2025. The revision comes after last week’s disappointing jobs report, which raised alarms about a potential economic slowdown. However, more recent data provided some relief, with weekly jobless claims coming in lower than expected.

Kasman highlighted a significant positive shift in the risk profile for U.S. inflation, partly due to easing labor market pressures as demand cools. He noted that wage inflation in the U.S. is slowing down in a manner not seen in other developed economies, aligning unit labor costs more closely with the Federal Reserve’s inflation target.

This adjustment has led to a decreased likelihood of prolonged high interest rates. Although the Federal Reserve kept interest rates steady in its latest policy meeting, market expectations suggest a 100% chance of a rate cut at the September meeting, according to CME’s FedWatch tool.

Kasman emphasized that the increased recession risk should not be overstated. He pointed out that typical recession indicators, such as sustained profit margin compression, credit market stress, and shocks in energy or financial markets, are currently absent.

JPMorgan is not alone in adjusting its recession forecasts. Goldman Sachs has also raised its recession probability to 25% from 15%, while maintaining that a recession is avoidable. Goldman Sachs cited the Federal Reserve's capacity to lower rates or engage in bond-buying as mitigating factors.