Economists at J.P.Morgan brokerage said that given the recent weaker-than-expected data on the U.S. labor market, the probability of a recession by the end of this year has increased to 35% from 25%. Thus, J.P.Morgan's estimates exceeded the forecasts of Goldman Sachs experts, who at the beginning of the week reported that the probability of a recession in the United States over the next 12 months now stands at 25% (+10% compared to the previous forecast).
Fears of a recession in the United States increased after the U.S. Labor Department announced on Friday that nonfarm payrolls increased by 114,000 in July after a downward revised 179,000 increase (from 206,000) in June. The July reading was well below the average monthly gain of 215,000 over the prior 12 months and the weakest monthly gain in three weeks. The unemployment rate jumped to 4.3 per cent from an unrevised 4.1 per cent in the prior month. This was the highest rate since October 2021. Economists had predicted the nonfarm payrolls to increase by 175,000 and the jobless rate to remain unchanged at 4.1 per cent.
"U.S. wage inflation is now slowing in a manner not seen in other developed markets economies. The softening of labor market conditions increases confidence both that service price inflation will decrease and that the Fed's current policy is restrictive," J.P.Morgan economists said, adding that they expect the Fed to cut interest rates by at least 1% by the end of the year.
According to the CME FedWatch Tool, markets see a 70.5% probability of a 0.5% rate cut in September, and a 54.3% probability of 0.25% rate cut in November. Overall, futures impose 105 basis points of cuts this year.