Markets Insider reported JP Morgan Strategist, Mike Bell, stating that the biggest risk to the market in 2023 is if there is no recession after all. As the economy has feared a recessionary state in the U.S., the actions of the Federal Reserve could negatively impact how the economy reacts.
Bell has stated that without a recession, current wage growth could force the Fed to raise rates more than expected. The action would be an attempt to combat inflation, which would lead both stocks and bonds to decline without rate cuts.
Market in Danger Without a Recession?
The current economic state of the United States is certainly a fragile one. Many are fearing for the worst, and preparing for such, as the economy reels following Federal Reserve interest rate hikes throughout 2022.
Yet, JP Morgan Strategist Mike Bell has stated that the greatest danger to the market in 2023 is no recession at all. Bell’s statements are rooted in a reality of possibly forcing the Fed to “remain hawkish.”
The Fed has been raising interest rates since March of 2022, leading many to brace for a recession, as abundant data show prices cooling off, “as the tight monetary policy slows the economy.” Conversely, S&P 500 and the Nasdaq are all up. Subsequently, the Fed will begin “reversing its tightening campaign in response to an economic downturn.”
Yet, Bell believes that “If the US economy avoids a recession and wage growth remains high, then the Fed would not cut rates as expected and instead would have to resume rate hikes in the second half of the year,” he told Bloomberg TV. Additionally, stating, “Unfortunately, [at that point] you’re back into a world where both bonds and stocks would go down together.”
JP Morgan’s best case assumes a recessionary action in 2023, allowing “wage pressures to moderate and the Fed to cut rates in 2024,” according to Bell. Specifically noting, “My best guess is that the Fed is going to bring rates down to about 2.5% by the end of 2024.”