JPMorgan has revised its forecast, predicting a 30% likelihood that the Federal Reserve and other central banks will maintain high interest rates for an extended period, down from a 50% probability just two months ago. JPMorgan Chase & Co. now projects a 35% chance of a US recession by the end of the year, up from 25% at the beginning of last month.
Recent US data indicates a sharper-than-expected weakening in labor demand and early signs of job cuts, according to JPMorgan economists led by Bruce Kasman. They also maintained the odds of a recession by the second half of 2025 at 45%.
“This modest increase in our assessment of recession risk contrasts with a more substantial reassessment we are making to the interest rate outlook,” Bloomberg quoted Kasman and his colleagues.
With inflation pressures in the US decreasing, JPMorgan expects the Federal Reserve to cut rates by half a percentage point in September and November. This adjustment in recession risk follows a similar move by Goldman Sachs Group Inc., which now projects a 25% probability of a recession in the next year.
The JPMorgan economists also noted that the realization of a “US/global recession” would “almost certainly produce a sharp and immediate easing” by central banks.
A weak jobs report and declining manufacturing activity in the world’s largest economy, coupled with poor forecasts from major US technology firms, pushed the Nasdaq 100 and the Nasdaq Composite into a correction last week. The disappointing jobs data also triggered the “Sahm Rule,” considered by many as a historically accurate recession indicator.
For over two years, the US Federal Reserve has been trying to balance raising interest rates to combat inflation while avoiding a recession. The triggering of the Sahm rule amplified recent concerns about a weak July jobs report. This metric, developed by economist Claudia Sahm, suggests that the current rise in unemployment might be an exception, potentially linked to the pandemic’s aftermath rather than a recession.
The Sahm rule signals a recession when the three-month moving average of the unemployment rate increases by 0.5% or more from its lowest point in the past year, indicating the start of an economic downturn.
Traders now see an 88% probability that the U.S. central bank will cut benchmark rates by 50 basis points in September, compared with an 11% chance seen last week, according to CME’s FedWatch Tool.