JPMorgan raises US recession odds to 35%

JPMorgan has raised its estimate of a US recession by year-end to 35 per cent from 25 per cent, citing easing labour market pressures. Fears of a recession, triggered by a weaker-than-expected July jobs report and unwinding yen-funded carry trades, led to a sharp global equity sell-off earlier this week.

Markets are currently pricing in a 100 per cent chance of a 50 basis points interest rate cut by the Federal Reserve in September, according to CME’s FedWatch tool.

“US wage inflation is now slowing in a manner not seen in other DM economies,” economists at JPMorgan said on Wednesday. “Easing labour market conditions increase confidence both that service price inflation will move lower and that the Fed’s current policy stance is restrictive.” Moreover, JPMorgan expects the Fed to “break from gradualism” and lower interest rates by at least 100 basis points by year-end.

Goldman Sachs has increased its recession probability for the US to 25 per cent over the next 12 months, up 10 percentage points from previous estimates.

Attribution: Reuters