J.P.Morgan Says Odds of Recession by Year’s End Now at 35 Percent

J.P.Morgan has raised the odds of a U.S. recession by the end of this year to 35 percent from 25 percent probability earlier, citing easing labor market pressures.

Fears of a U.S. recession following a weaker-than-expected July jobs report and an unwinding of yen-funded carry trades sparked a sharp sell-off in global equities earlier this week.

Markets are currently pricing a 100 percent 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, said in a note on Wednesday.

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

J.P.Morgan expects the Fed to “break from gradualism” stance and lower interest rates by at least 100 bps through the end of the year.

Goldman Sachs raised its probability of the U.S. tipping into a recession by 10 percentage points to 25 percent for the next 12 months, the brokerage said in a client note on Sunday.

Reporting by Roshan Abraham in Bengaluru, Editing by Eileen Soreng.