There is roughly a 40 percent chance of a U.S. recession this year, alongside the potential for lasting harm to the nation’s reputation as an investment hub, should the administration erode confidence in U.S. governance, according to J.P. Morgan‘s chief economist. “Where we stand now is with a heightened concern about the U.S. economy,” Bruce Kasman, U.S. investment bank’s chief global economist, recently informed reporters in Singapore. He mentioned that he has not yet adjusted any forecasts, but he included a roughly 40 percent recession risk in the outlook—an increase from the roughly 30 percent chance he had estimated at the year’s beginning. J.P. Morgan’s latest forecast anticipates 2 percent growth in U.S. GDP for this year.
U.S. stocks have experienced their steepest selloff in months recently, as investors have become apprehensive that President Donald Trump might hinder the economy through import duties. Economists at Goldman Sachs and Morgan Stanley downgraded their U.S. GDP growth predictions last week, now estimating growth rates of 1.7 percent and 1.5 percent for this year, respectively.
Potential impacts of tariffs
Kasman indicated that the recession risk could escalate, likely reaching 50 percent or higher, if the reciprocal tariffs that Trump has threatened to implement starting in April were to take effect meaningfully. “If we would continue down this road of what would be more disruptive, business-unfriendly policies, I think the risks on that recession front would go up,” Kasman stated.
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Investor confidence in U.S. assets
Furthermore, Kasman expressed that discomfort with the administration’s approach could undermine investor confidence in U.S. assets if it jeopardized the trust that has been cultivated over many years in U.S. markets and institutions. “The U.S. seems to have established itself as a place where people can be comfortable about rule of law … comfortable about the integrity of information flow, and they can be comfortable that the government isn’t going to be, in unexpected ways, getting involved in the rules of the game,” he asserted.
Uncertainties in U.S. policy
Kasman noted that the administration’s reductions in government agency budgets, shifts in the U.S. role globally, and decisions such as the recent move to disband advisory committees that aid in data collection could undermine this trust. “All of those things are part of the uncertainties that have moved into U.S. policy, and that part of the risk in the outlook this year I don’t think has been appreciated,” he remarked.
Implications of ‘exorbitant privilege’
“The term which has been in place for a very long time is that we have ‘exorbitant privilege.’ That we end up paying a much lower cost for financing our deficits and debt, we have much greater capital flows and attractiveness of the dollar and assets, because of these things,” he explained. “The risk that that stuff starts to come under pressure and becomes a structural issue in the markets is not something I would, by any means, underplay.”
