JPMorgan Chase & Co. economists have revised their prediction for the US economy, stating that the country is likely to avoid a recession. This change in outlook aligns with a growing number of forecasters who now anticipate that the US economy will avert the downturn that was once believed to be imminent.
Previously, JPMorgan had forecasted a recession to begin in 2023. However, the bank now expects the US economy to continue expanding this year and experience modest, sub-par growth in 2024. Michael Feroli, JPMorgan’s chief US economist, cited the increasing possibility of healthy non-inflationary growth due to potential productivity gains from artificial intelligence and a rise in labor supply.
One factor contributing to the diminished likelihood of a contraction is the relatively quick resolution of the debt ceiling issue. Additionally, regulators’ implicit guarantee of bank depositors has greatly reduced the odds of a financial crisis risk. These developments have played a role in the change of opinion regarding the possibility of a recession.
Bank of America Corp. recently became the first major Wall Street bank to reverse its recession prediction, reflecting growing optimism about the economic outlook. This shift in perspective is consistent with the change in tune among economists at the Federal Reserve in July.
JPMorgan now foresees the US GDP growing at a healthy annualized pace of 2.5% in the current quarter, followed by 1.5% in the fourth quarter. Feroli still anticipates that the unemployment rate will rise to 4.5% by the end of next year, representing a one-percentage-point increase from its current level.
The pandemic’s impact on capital deepening has been relatively minimal compared to the global financial crisis. Companies have started investing again, potentially paving the way for a long period of low-inflation expansion. Despite the positive economic developments, risks to the outlook remain.
While a recession is no longer the most likely scenario, there is still a heightened risk of a downturn. This risk could materialize if the Federal Reserve continues to hike interest rates or if the normal lagged effects of previous tightening measures take effect.
The July jobs report provides further evidence of the labor market’s strength, reinforcing hopes for a soft landing. Employers added jobs at a steady pace, and the unemployment rate dropped to 3.5%, reaching one of its lowest levels in decades.
Monthly inflation data for July is expected to show a modest increase of 0.2% in consumer prices, excluding food and energy. This follows a similar reading in June and indicates the smallest back-to-back increases in over two years.
In conclusion, JPMorgan Chase & Co. economists have joined the growing cohort of economists predicting that the US economy will avoid a recession. They now anticipate continued expansion with modest growth in the coming years. While risks remain, positive factors such as resolved financial crises and resilient economic indicators have contributed to this revised outlook.
