J.P. Morgan Raises U.S. Recession Odds

(Reuters) – J.P. Morgan has increased the likelihood of a U.S. recession by the end of this year to 35% from 25%, citing easing labor market pressures.

Fears of a U.S. recession followed a weaker-than-expected July jobs report and an unwinding of yen-funded carry trades, which led to a significant sell-off in global equities earlier this week.

Markets are currently pricing in a 100% chance of a 50 basis points interest rate cut in September by the Federal Reserve, according to CME’s FedWatch tool.

“U.S. wage inflation is now slowing in a manner not seen in other DM economies,” economists at the Wall Street brokerage noted on Wednesday.

“Easing labor market conditions increase confidence that service price inflation will decrease and that the Fed’s current policy stance is restrictive,” they added.

J.P. Morgan expects the Fed to shift from a gradual approach and lower interest rates by at least 100 bps by the end of the year.

Goldman Sachs has also raised the likelihood of the U.S. entering a recession by 10 percentage points to 25% over the next 12 months, according to a client note on Sunday.