Market Analysis

J.P. Morgan has increased the likelihood of a U.S. recession by the end of this year to 35%, up from a previous estimate of 25%, citing a softening in labor market pressures.

Concerns over a U.S. recession grew after a weaker-than-expected July jobs report and the unwinding of yen-funded carry trades triggered a significant sell-off in global equities earlier this week.

Markets are now fully pricing in a 50 basis points interest rate cut by the Federal Reserve in September, according to CME's FedWatch tool.

"U.S. wage inflation is now decelerating in a way not observed in other developed economies," economists at the Wall Street brokerage said in a note on Wednesday.

"Easing labor market conditions bolster confidence that both service price inflation will decline and that the Fed's current policy stance is restrictive," they added.

J.P. Morgan anticipates the Fed will "abandon its gradual approach" and reduce interest rates by at least 100 basis points by year-end.

Similarly, Goldman Sachs has raised its estimate of the probability of a U.S. recession in the next 12 months by 10 percentage points to 25%, according to a client note released on Sunday.

Paraphrasing text from "Reuters" all rights reserved by the original author.