JPMorgan warns that the U.S. economy is becoming "more vulnerable" and faces an increased risk of recession.
The strategists said in a note that 2016 is likely to see "pockets of stress," Business Insider
reported. The risk of a U.S. recession over a two- to three-year horizon has "increased materially," according to JPMorgan strategists led by Bruce Kasman.
Kasman's colleagues, JPMorgan economists Michael Feroli, Daniel Silver, Jesse Edgerton, and Robert Mellman, think there is a three-in-four chance that there will be a recession in the next three years, Business Insider explained.
“Our models suggest that U.S. recession risks over a two- to three-year horizon have increased materially as a result of weak supply-side performance. U.S. expansions don’t die of old age, but an environment of tight labor markets amid weak productivity gains and limited global pricing power signals that the expansion is becoming more vulnerable,” the note reads.
“Persistent wide business cycle divergences threaten financial instability in the global economy’s weak links that could prove disruptive. However, we believe the most likely 2016 outcome is one where the global expansion moves forward in the face of pockets of stress," the note said. "EM weakness will weigh on the global expansion, but the resilience of the U.S. and Western Europe, combined with policy support in China, makes it likely that growth will remain bounded close to our 2.6% estimate of global potential growth in 2016.”
The strategists add that they expect growth in China to stabilize, but that emerging-market economies in Latin America, Russia, and South Africa will still suffer from the slowdown, Business Insider explained.
“A significant credit tightening is expected in these EM economies, and risks are high that there will be a disruptive but localized credit event next year," they said. "We downplay the threat that a localized event broadens, partly because the U.S. Fed is likely to remain highly sensitive to global financial market developments and also reflecting our assumptions about the course of policy in China. While our forecast incorporates four U.S. rate hikes next year, the risk that global financial market volatility slows the Fed’s path is high.”
JPMorgan's warning is the latest in a long line of dire predictions.
Marc Faber, author of the Gloom, Boom & Doom Report, recently said the U.S. is at the start of an economic recession, clashing with Federal Reserve Chair Janet Yellen's view that things are improving.
“I believe that we’re already entering a recession in the United States” and U.S. stocks will fall in 2016, Faber, the publisher of the Gloom, Boom & Doom Report, told Bloomberg TV.
Others say that most people are ignoring the obvious: the U.S. economy is stalling.
"A big point is being lost in buzz of the holidays, end-of-year excitement and the market’s hubbub over the start of the first Federal Reserve policy tightening campaign in more than a decade: America's economy is stalling," The Fiscal Times
If the trend continues, stocks could weaken in the new year, the Times warns.
"It's likely that financial markets will grow increasingly concerned about the Fed's more aggressive rate hike forecast for 2016, which calls for four 0.25 percent hikes, while futures are pricing in between two and three hikes," writes Anthony Mirhaydari.
"A faster rate of Fed tightening could very well result in further economic weakness at a time of vulnerability."
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