JPMorgan Chase has joined the masses in voicing their concerns over an impending recession following the release of the July jobs report. Indeed, the investment banking firm has recently raised the U.S. recession probability to 35% for an economic downturn by the end of this year, up from 25%.
What’s behind JPMorgan’s change of tune?
Well, JPM believes last month’s jobs data points to a “sharper-than-expected weakening in labor demand and early signs of labor shedding,” according to JPMorgan economists led by Bruce Kasman. “This modest increase in our assessment of recession risk contrasts with a more substantial reassessment we are making to the interest rate outlook.”
The bank maintains its predicted probability of a recession by the second half of 2025 at 45%. It also believes the Federal Reserve will opt to lower interest rates by 50 basis points in both September and November, a quicker pace than many economists had projected just weeks ago. JPMorgan predicts that a global recession would spark a accelerating cutting cycle from central banks.
Investment Banks Weigh In On U.S. Recession Probability
JPM’s new assessment comes just days after a similar calculation change from fellow investment banking giant, Goldman Sachs, which now estimates there’s a 25% chance of a recession in the next year, up from 15%. However, the group is notably less concerned over a potential slump, even despite the recent rise in unemployment.
According to Goldman Sachs, the economy looks “fine overall,” noting that there are no major institutional imbalances and that the Federal Reserve has plenty of leeway to act quickly if necessary.
“This modest increase in our assessment of recession risk contrasts with a more substantial reassessment we are making to the interest rate outlook,” noted Goldman economists led by Jan Hatzius on Sunday.
The change in recession probability comes as fears reached something of a fever pitch earlier this week. Indeed, global markets tumbled Monday after the July jobs report showed the U.S. reached an unemployment level of 4.3%, its highest rate since October 2021. Since then however, markets have bounced back surprisingly quickly. In fact, the S&P 500 logged one of its best days of the year on Thursday, following a strong weekly jobless claims report.
On the date of publication, Shrey Dua did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
