J.P. Morgan cautions on 40 percent U.S. recession risk amid policy uncertainty

JPMorgan Chase's chief economist has stated that if the U.S. government's policies undermine investor confidence in American governance, the probability of a U.S. economic recession this year is about 40%, and it could cause lasting damage to the U.S.'s reputation as an investment hub. The economist emphasized that concerns about the U.S. economy are currently escalating.

Bruce Kasman, JPMorgan Chase's chief global economist, recently revealed to reporters in Singapore that he has not adjusted any economic forecasts, but has factored in the risk of a recession, estimating the probability at about 40%, up from the 30% estimated at the beginning of the year. JPMorgan Chase's latest forecast shows U.S. gross domestic product (GDP) is expected to grow by 2% this year.

U.S. stocks recently experienced their worst sell-off in months as investors worried that President Trump might hinder economic development through import tariffs. Economists at Goldman Sachs and Morgan Stanley lowered their forecasts for U.S. GDP growth last week, projecting growth rates of 1.7% and 1.5% this year, respectively.

Kasman pointed out that if the reciprocal tariffs threatened by Trump, which are scheduled to begin in April, have a substantial impact, the risk of an economic recession could escalate, potentially reaching 50% or higher. He stated, "If we continue down this policy path that is detrimental to business, I think the risk of recession will rise."

Kasman said that unease about the government's approach could undermine investor confidence in U.S. assets if the government's actions jeopardize the trust built up over many years in U.S. markets and institutions. He emphasized, "The United States seems to have established itself as a place where people can confidently abide by the rule of law...confidently understand the integrity of information flows, and they can be confident that the government will not intervene in the rules of the game in unexpected ways."

Kasman pointed out that government decisions such as cutting budgets for government agencies, changing the U.S.'s role in the world, and recently disbanding advisory committees that assist in data collection, could all undermine this trust. He commented, "All of this is part of the uncertainty emerging in U.S. policy, and I don't think this part of the risk in this year's outlook has been fully appreciated."

Kasman explained, "We have long had an 'exorbitant privilege,' which means we pay much lower costs to finance deficits and debt, and we have greater capital flows and the attractiveness of the dollar and assets because of these factors. The risk should not be underestimated once this advantage begins to face pressure and becomes a structural problem in the market."