Investing.com – JPMorgan (NYSE:) confirmed that a recession in the United States is certain, indicating that it may ease by the third quarter when growth runs out of steam.
“The market is right to expect rate cuts this year,” said Seamus McGurrin, chief interest rate analyst at JP Morgan (NYSE:) in London. “Inflation is very high and it will take a recession to bring it back down,” he noted, adding that US banking problems “made a recession more likely.”
This comes at a time when members of the Federal Reserve affirm the central bank’s lack of intention to cut interest rates this year, and accordingly, “JP Morgan” is likely to surprise the markets by cutting interest rates this year, provided that the economy enters the tunnel of recession.
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McGurrin, who favors Treasuries, is siding with swaps traders who expect the Fed to reverse its hawkishness as soon as September to counter slowing growth. But the US central bank has repeatedly rejected this idea, raising the possibility that such bets could backfire if officials maintain a restrictive stance to subdue inflation.
JPMorgan’s views differ from those of Goldman Sachs (NYSE:) and Barclays (LON:), which have warned that the Fed will be less aggressive in cutting rates this year than markets expect.
Preferred by JPMorgan as a suitable hedge against an economic slowdown, it sees the potential for 10-year yields to fall below 2.5% in the event of a deep downturn. The US 10-year yield was trading around 3.52% on Wednesday after rising to 4.09% earlier this year. The bank is betting on the rise in treasury bonds after the recent interest rate hike.
Of the debt ceiling, Sheamus said the most likely outcome is that the crisis will be resolved after an episode of market stress. It’s hard to say exactly when that will happen, whether it’s in the next few weeks or whether it might be a little late in the summer.
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