Recession risk: 'It's uncomfortably high,' JPM economist says

·3 min read

Not all economists think there's a high likelihood of an imminent recession.

Bruce Kasman, chief economist at JPMorgan Chase & Co. (JPM), puts the risk of a short-term recession risk in the next six to nine months "somewhere in the 35% to 40% [range] probably, which means I don't think it's the likely scenario," he told Yahoo Finance Live. However, he added, "It's uncomfortably high in terms of risk."

Kasman joined Yahoo Finance Live to discuss the economy, job growth, inflation, and the outlook for Fed policy.

Kasman pointed out that the U.S. economy is still generally healthy. "We haven't had a recession in the U.S. in post-World War II history without the unemployment rate rising more than 2 percentage points. If you ask me, 'Are we there now?' I think the answer is definitely not. We're still seeing strong job growth. We're still seeing consumer spending increase despite the fact that there's a fairly big drag here from purchasing power from inflation. And basically, all the indicators are suggesting we're still growing," he explained.

However, Kasman notes that growth is strained while and risks are rising. "There's a combination of higher inflation with commodity price pressures intense, tightening financial conditions, and more recently, of course, and importantly, what the Fed told us last week, which is that they're definitely moving policy into a restrictive stance, and that they ultimately do want the unemployment rate to rise," he said.

"You put those things together, you can't ignore the idea that we could be in a recession sometime in the next 6 to 12 months."

Kasman emphasized that he sees two very different dynamics around a possible recession. "The first is that we're just putting too many straws on the camel's back here. And the back is the consumer. And that is the high inflation. It is the tightening in financial conditions. It is combining with what the Fed is doing here to put a lot of pressure. And if you kind of hit that hard enough, even in what we think is a pretty healthy underpinning for the economy, you can throw us over," he said. "That's the short-term recession risk."

The second scenario, he added is that inflation is not likely to come back down to where the Fed wants. "It's likely to need to put policy in place to raise unemployment rates. And over time, that's not an easy path to follow without doing enough damage to throw the economy into recession," he said.

Regardless of when — or if — a recession strikes, Kasman explains that lower-income households would be hit the most. "Any time you have a mix of high inflation and labor markets that are easing, which isn't the case now, but would be the case in a recession, it does hit low income households by far the most. And I think that is the concern. And that is the problem that we're going to face here. Of course, a recession is broad-based. It hits sectors across the economy quite widely."

Yaseen Shah is a writer at Yahoo Finance. Follow him on Twitter @yaseennshah22

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