Why JP Morgan sees rising risks despite cooling inflation

As of August 15, JP Morgan Research indicates that the probability of a US and global recession in 2024 has reached 35%, up from their mid-year estimate of 25%. While inflation appears to be slowing, signs of weakening economic growth and a weaker-than-expected labor market are key factors behind this increased likelihood. Here’s a closer look at the factors driving these concerns and what they could mean for interest rates and the broader economy.

Don’t miss:

July’s jobs report was a key indicator of the changing economic landscape. The report revealed a rise in the unemployment rate for the fourth consecutive month, suggesting that the labor market, which has remained resilient for most of the past year, is beginning to ease. This weakening of labor demand has prompted JP Morgan to reassess its growth forecasts, now seeing higher recession risks.

See also: IRS Finalizes 10-Year Rule on Retirement Withdrawals, Making Things ‘Crazy More Complicated’

Bruce Kasman, chief global economist at JP Morgan, highlighted the factors contributing to this updated outlook. “U.S. news suggests a stronger-than-expected weakening of job demand and early signs of job losses,” Kasman said. In addition, global manufacturing and the euro zone saw a loss of momentum, areas that were previously expected to boost growth.

However, Kasman pointed out that the key vulnerabilities of the recession – such as sustained profit margin compression, credit market stress and energy or financial market shocks – are still absent. These factors led JP Morgan to raise its recession probability rating only slightly to 35%.

Trends: Will Cannabis and Psilocybin Drug Development Disrupt $678 Billion Pharmaceutical Industry? This startup is betting on it and you can be an early investor too with just $250 for under $2/share

Looking ahead, JP Morgan kept the probability of a recession by the end of 2025 at 45%. While the political landscape remains uncertain, the overall assessment of long-term recession risks remains steady.

Inflation, a significant concern over the past year, has cooled, prompting a reassessment of the Federal Reserve’s interest rate strategy. JP Morgan now sees a 30% chance the Fed will keep interest rates high for an extended period, down from 50% just two months ago. This change reflects a changing economic environment, where strong supply-side performance and moderating labor demand are easing inflationary pressures.

The story continues

Trends: Don’t Miss the Real AI Boom – here’s how to use just $10 to invest in high-growth private tech companies.

Kasman explained: “The modest increase in our assessment of recession risk contrasts with a more substantial reassessment we are making of the interest rate outlook.”

It is important to note that this anticipated rate cut may not be reflected globally. The shift in inflation risk appears to be centered on the US, and other economies may not experience the same policy adjustments. “Our experience shows that the pass-through of Fed policy changes to other economies is limited in the absence of a synchronized change in macroeconomic fundamentals and financial market conditions,” Kasman noted. “As a result, there is a good chance that the shift away from gradualism that we now expect from the Fed will not be reflected more broadly.”

Trending: This startup’s stem cell research aims to reduce reliance on animal testing – It’s seeing 55% YTD sales growth and costs just $3 per share for early investors.

Although the likelihood of a recession has increased, it is wise to consider the broader economic context. Although risks are rising, especially in the labor market, other recession indicators are not flashing red.

Despite the risks of a recession, many positive things are still happening in the global economic environment. Eric Freedman, chief investment officer for US Bank Wealth Management, says: “We still think this is a very positive investment environment. This is a well-telegraphed slowing economy. If we felt that there was a structural economic change going on, we would come to a different conclusion.”

As always, it’s important to plan carefully as you navigate economic uncertainties. For those concerned about the implications of these developments for their financial future, consulting a financial advisor can provide customized strategies to protect your assets and achieve your long-term goals.

Read on:

“THE SECRET WEAPON OF ACTIVE INVESTORS” Up Your Stock Game With The #1 “news & Everything” Trading Tool: Benzinga Pro – Click Here To Start Your 14 Day Trial Now!

Get the latest stock analysis from Benzinga?

This article 35% chance of recession in 2024: Why JP Morgan sees rising risks despite cooling inflation originally appeared on Benzinga.com

© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.