JP Morgan Chase & Co. has warned that the biggest risk to the financial markets in 2023 is not a recession, but rather an overheated economy. The firm believes that if the economy continues to grow at a rapid pace without any signs of slowing down, it could cause a sharp rise in inflation that would be difficult to manage. Additionally, JP Morgan believes that if the economy does not experience any significant downturns, it could lead to a bubble in certain sectors, such as technology and real estate, that could create significant volatility in the markets.

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 warned that without a recession, current wage growth could force the Fed to raise rates more than expected in an attempt to combat inflation, which could 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.”

Bell has warned that without a recession, current wage growth could cause the Fed to raise rates more than expected in an attempt to combat inflation, which could lead both stocks and bonds to decline without rate cuts. Bell’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.”