(Bloomberg) -- JPMorgan Chase & Co. economists cut their US economic forecasts for this year and next after judging that falling stock prices, higher mortgage rates and a stronger dollar relative to trading partners will weigh on the outlook.
In a report to clients, economists led by Michael Feroli on Wednesday lowered their growth outlook for the second half of 2022 to a 2.4% rate from 3%, for the first half of 2023 to 1.5% from 2.1% and for the second half of 2023 to 1% from 1.4%. That will result in a US unemployment rate in the second half of 2023 of 3.5% compared to an earlier view of 3.2%, the firm said.
The economists cited hawkish comments by Federal Reserve Chair Jerome Powell, who said Tuesday that the US central bank will raise interest rates until there is “clear and convincing” evidence that inflation is in retreat. He welcomed a slowdown in growth that would reduce inflation from near a four-decade high.
“The Fed is gaining traction in getting the desired tightening in financial conditions,” the economists, also including Daniel Silver and Peter McCrory, wrote. “Financial conditions have tightened because, as Chair Powell said recently, the Fed has to slow growth. The Fed will do what it takes to make sure that happens. This gives us some confidence that GDP growth will slip below its potential rate in coming quarters.”
The potential or capacity for growth longer term for the U.S. economy is estimated by the Fed and many private economists at around 1.8-2%.
US stocks posted the biggest daily drop in almost two years Wednesday as investors assess the impact of higher prices on earnings and prospects for monetary policy tightening on economic growth. Each $1 of lost financial wealth translates into a drop of spending of about 2 cents to 3 cents over the course of a year, the economists wrote. The recent hit to wealth would subtract about $100 billion from the annualized level of consumer spending in coming quarters, or almost 0.5% of gross domestic product, they wrote.
The various drags on growth “should foster enough of a growth slowdown to eventually lead to a gradual upward drift in the unemployment rate later next year,” the economists wrote, adding they are forecasting a “soft landing” of slower growth with lower inflation, which is the aim of the Fed, though such outcomes are rare.
JPMorgan is the latest firm to reduce its forecasts or upgrade its outlook for risks. Deutsche Bank AG economists in late April forecast a deep US recession next year, while Goldman Sachs Group Inc. has estimated chances of a contraction at about 35% over the next two years.
©2022 Bloomberg L.P.
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