J.P.Morgan economists predict a “mild recession” in the United States in the back half of next year given expectations for the Federal Reserve to tighten monetary policy further in its battle against inflation.
The investment bank sees the economy contracting by 0.5% by the fourth quarter of next year, and possibly dragging into 2024. That is seen cutting 2023 U.S. gross domestic product (GDP) to 1%, almost half of its forecast for 2022.
JPM expects another 100 basis points (bps) worth of hikes from the Fed through March 2023, after hiking by more than 300 bps so far this year. A 50-bps hike is expected in December, followed by 25 bps each in February and March.
It sees U.S. consumer price inflation cooling to 4.1% by year-end 2023. As of October, the figure stood at 7.7%. Personal consumption expenditure – the Fed’s preferred inflation metric – is expected to moderate to 3.4% next year.
The resultant slowing in aggregate demand could see the U.S. economy shed over one million jobs by mid-2024, which could then see the Fed start easing rates by 50bps per quarter starting in the second quarter of 2024, JPM said.