12 Insights on Inflation, Recession and Where to Invest Now: JPMorgan

2. ‘Good Chance’ for Mild, Brief Recession

Fed actions this year have “really increased the risk for recession,” Kelly said.

In December, Fed officials expected inflation to ease, for vaccines to contain the COVID pandemic and for supply chain issues to resolve. “When that did not materialize, that is when they lost their nerve,” Kelly said. “Honestly I think they should have kept their cool,” because these were temporary factors, he added.

Now the central bank has raised interest rates much more than they anticipated six months ago.

“Will we end up in recession? I think there’s a good chance we will,” Kelly said, quickly adding that it’s likely to be mild if it happens.

The ratio of job openings to job seekers is likely to come down “but it still is so high by historical standards that there will probably be an excess amount of labor all the way to the end of this year. And if that’s the case, that should keep the unemployment rate low, it should keep payroll job growth positive, and it’s hard to say you’ve got a recession if you’ve got a low, flat unemployment rate and payroll jobs growth,” Kelly said.