JPMorgan Chase economists, at JPMorgan Chase, have abandoned their recession prediction, aligning with a growing sentiment on Wall Street that a contraction is no longer inevitable. Despite acknowledging lingering risks and anticipations of slow growth, the bank’s forecasters at JPMorgan Chase now see the possibility of a soft landing. The data flow suggests third-quarter growth of around 2.5%, a significant upgrade from their previous projection of just 0.5% expansion.
Recent positive metrics, along with the resolution of the debt ceiling impasse and the containment of a banking crisis, have contributed to this revised outlook. Additionally, productivity gains driven by broader artificial intelligence implementation and improved labor supply have further bolstered their confidence.
Rate risk
Despite dismissing the recession as their base scenario, Feroli emphasized that risks still persist. He specifically highlighted concerns about the Federal Reserve’s policy, which has led to 11 interest rate hikes since March 2022, totaling 5.25 percentage points.
Despite these hikes, inflation remains above the central bank’s 2% target. According to Feroli, a recession could still materialize if the Fed continues raising rates or if the effects of the past tightening measures kick in with a lag.
Feroli does not anticipate the Fed to start cutting rates until the third quarter of 2024, but market pricing indicates that the first rate cut might come as soon as March 2024. Additionally, market indicators, such as the New York Fed’s yield curve tracker, suggest a 66% chance of a contraction within the next 12 months. The inverted yield curve has historically been a reliable predictor of recessions, dating back to 1959.
Changing mood
However, the mood on Wall Street has changed about the economy. Earlier this week, Bank of America also threw in the towel on its recession call, telling clients that “recent incoming data has made us reassess” the forecast. The firm now sees growth this year of 2%, followed by 0.7% in 2024 and 1.8% in 2025.
Goldman Sachs also recently lowered its probability for a recession to 20%, down from 25%. Federal Reserve GDP projections in June pointed to respective annual growth levels ahead of 1%, 1.1% and 1.8%. Chairman Jerome Powell said last week that the Fed’s economists no longer think a credit contraction will lead to a mild recession this year.