JPMorgan Chase Economists No Longer Predicting a Recession
JPMorgan Chase economists have abandoned their previous prediction of an upcoming recession, aligning with a growing sentiment on Wall Street that a contraction is no longer inevitable. Despite acknowledging that risks remain high and growth may be slow, the bank’s forecasters believe the current data suggests a soft landing is possible. This is surprising considering the deliberate interest rate hikes and other significant challenges faced by the economy.
Michael Feroli, the chief economist at JPMorgan Chase, informed clients that recent metrics indicate a growth rate of around 2.5% in the third quarter. This is a significant increase compared to the bank’s previous forecast of only 0.5% expansion. Feroli stated, “Given this growth, we doubt the economy will quickly lose enough momentum to slip into a mild contraction as early as next quarter, as we had previously projected.”
In addition to positive data, Feroli highlighted the resolution of the debt ceiling issue in Congress and the containment of a banking crisis in March as factors that have since been resolved. He also mentioned productivity gains resulting from the broader implementation of artificial intelligence and improved labor supply, even though hiring has slowed down in recent months.
Concerns about Interest Rates
However, Feroli emphasized that the risk of a recession is not entirely eliminated. He specifically mentioned the danger of Federal Reserve policies, which have led to 11 interest rate hikes since March 2022, totaling 5.25 percentage points. Despite these increases, inflation remains above the central bank’s target of 2%. Feroli stated, “While a recession is no longer our most likely scenario, the risk of a downturn is still high. This risk could materialize if the Fed continues to raise rates or if the effects of the previous rate hikes start to kick in.”
Feroli does not expect the Fed to begin cutting rates until the third quarter of 2024. However, current market pricing suggests that the first rate cut may come as early as March 2024, according to CME Group data. Market pricing also indicates a strong possibility of a recession.
An indicator from the New York Fed, which tracks the difference between 3-month and 10-year Treasury yields, suggests a 66% chance of a contraction within the next 12 months. This so-called inverted yield curve has historically been a reliable predictor of an upcoming recession.
Shift in Wall Street Sentiment
Wall Street’s outlook on the economy has recently shifted. Bank of America also abandoned its recession prediction, stating that “recent incoming data has made us reassess” the forecast. The firm now expects growth of 2% this year, followed by 0.7% in 2024 and 1.8% in 2025. Goldman Sachs has also lowered its probability of a recession from 25% to 20%.
In June, the Federal Reserve’s GDP projections indicated annual growth rates below 1%, 1.1%, and 1.8%, respectively. Chairman Jerome Powell stated last week that the Fed’s economists no longer anticipate a credit contraction leading to a mild recession this year.
—’s Michael Bloom contributed.