World’s largest economy is dangerously close to recession

JPMorgan Chase revised its US growth outlook mid-year, cutting expectations for annualized real GDP growth in the second quarter to 1% from 2.5%, Bloomberg reported on Friday.

The largest U.S. bank also lowered its forecast for the third quarter to 1% from 2%. However, growth is expected to accelerate to 1.5% in the last three months of the year, boosted by robust auto production and lower inflation, analysts at JPMorgan said.

The downgrade comes amid tightening monetary policy as the US Federal Reserve reacts to inflation with aggressive rate hikes. The Fed raised interest rates by 0.75 percentage points in June.

The gloomy outlook followed an influx of weaker data earlier this week that showed US consumer spending rose less-than-expected in May as autos remained tight. Meanwhile, higher prices forced cuts in purchasing other goods.

“Our forecast comes dangerously close to a recession” Michael Feroli, JPMorgan’s chief US economist, said in a note provided to the agency.

“However, we remain hopeful of economic expansion, in part because we believe employers may be reluctant to lay off workers even at a time of demand for soft products.”