A U.S. recession is almost a foregone conclusion, with the Federal Reserve likely to cut interest rates before the third quarter as economic growth loses steam, JPMorgan said.
“The market is right to expect a rate cut. Inflation is too high and only a recession can bring it back down,” said Seamus Mac Gorain, JPMorgan’s global head of rates, adding that woes in the U.S. banking sector would only increase the chances of a recession. Gorain backed the views of swap traders who expect the Fed to implement a policy shift in response to slowing economic growth as early as September.
Gorain’s view differs from that of Goldman Sachs and Barclays, which have warned that the Fed will cut rates less aggressively than markets expect this year.
JPMorgan Chase is bullish on U.S. Treasuries, seeing them as the ultimate hedge against an economic slowdown, and sees the potential for U.S. 10-year Treasury yields to fall below 2.5% in the event of a severe recession. Gorain said government bonds were still the best market and other markets were starting to look more attractive, including long-term European forward rates.
