JP Morgan Economist Warns of Rising US Recession Risk Amid Policy Uncertainty
SINGAPORE, March 12 – JP Morgan’s chief economist has cautioned about a growing probability of a U.S. recession this year, citing concerns over the potential for lasting damage to the country’s reputation as a stable and reliable investment destination. The warning underscores the increasing anxiety within financial circles regarding the current economic climate and the potential impact of policy decisions on investor confidence.
Bruce Kasman, the U.S. investment bank’s chief global economist, addressed reporters in Singapore on Wednesday, stating that the firm is now factoring in an approximately 40% chance of a U.S. recession. This marks a significant increase from the roughly 30% probability that JP Morgan assessed at the beginning of the year. While the bank’s current forecast still projects a 2% U.S. GDP growth for the year, Kasman emphasized that this outlook is subject to change if certain negative trends persist or escalate.
The remarks come at a time when U.S. stocks have experienced a notable selloff, reflecting investor unease about the potential economic consequences of President Donald Trump’s trade policies, particularly the imposition of import duties. Concerns center on the potential for these tariffs to disrupt global supply chains, increase costs for businesses and consumers, and ultimately stifle economic growth.
A recent Reuters poll, encompassing economists across Canada, Mexico, and the U.S., revealed that an overwhelming 95% believe that recession risks in their respective economies have risen as a direct consequence of Trump’s tariffs. This near-unanimity highlights the widespread apprehension among economists regarding the potential for these trade measures to trigger an economic downturn.
Echoing these concerns, leading financial institutions like Goldman Sachs and Morgan Stanley have already downgraded their U.S. GDP growth forecasts for the year. Both firms now anticipate growth figures below 2%, with Goldman Sachs projecting 1.7% growth and Morgan Stanley even lower at 1.5%. These downward revisions serve as a tangible indication of the growing pessimism within the financial industry regarding the U.S. economic outlook.
Kasman further cautioned that the recession risk could escalate to 50% or higher if the reciprocal tariffs threatened by the Trump administration were to be implemented in a significant manner. He emphasized that a continued pursuit of disruptive and business-unfriendly policies would substantially heighten the risks on the recession front. This underscores the critical importance of carefully considering the potential ramifications of policy decisions on the overall health of the U.S. economy.
Beyond the immediate economic risks, Kasman also raised concerns about the potential for the administration’s style and policy choices to erode investor faith in U.S. assets. He stressed that the long-standing trust in U.S. markets and institutions, built over many years, could be jeopardized if that trust is challenged. The U.S. has historically been perceived as a safe haven for investment, characterized by the rule of law, the integrity of information flow, and a stable regulatory environment.
However, Kasman suggested that certain actions by the administration, such as cutbacks to government agencies, changes to the U.S. role in the world, and decisions like disbanding advisory committees assisting with data collection, could undermine this perception. These actions create uncertainties within the U.S. policy landscape, which have not been fully appreciated by the market.
Kasman highlighted the concept of "exorbitant privilege," which refers to the advantages enjoyed by the U.S. due to its unique position in the global financial system. This includes a lower cost for financing deficits and debt, greater capital flows, and the attractiveness of the dollar and U.S. assets. However, he warned that the risks to this privilege are not to be underestimated. If investor confidence in the U.S. diminishes, the country could face higher borrowing costs, reduced capital inflows, and a weakening dollar, all of which would have significant negative consequences for the economy.
The economic risks highlighted by Kasman should also be considered in conjunction with other challenges the United States faces. Aging demographics in many developed countries, including the United States, are putting downward pressure on workforce growth, which is key to productivity growth and GDP growth.
In conclusion, the remarks by JP Morgan’s chief economist serve as a stark warning about the rising recession risks facing the U.S. economy. Concerns over trade policies, policy uncertainty, and the potential erosion of investor confidence are all contributing to a more pessimistic outlook. If these trends persist or escalate, the U.S. economy could face significant challenges in the coming months and years. Policy makers need to carefully consider the potential ramifications of their decisions and act to preserve the country’s reputation as a stable and reliable investment destination. Failure to do so could have lasting consequences for the U.S. economy and its standing in the world.
