JPMorgan: US Economic Outlook - Slowing Growth and Sticky Inflation

JPMorgan projects the US economy will enter a phase of decelerating growth in the second half of 2026, accompanied by persistent inflation. The firm expects core PCE inflation to remain sticky at 2.8% by year-end, well above the Federal Reserve's 2% target, driven by housing and service price rigidities. Consequently, the central bank is likely to hold the federal funds rate steady at 5.25% to 5.50% for the remainder of 2026, deferring the initial rate cut to early 2027. The labor market is cooling without deteriorating severely; unemployment is forecast to climb to 4.3%, though nonfarm payrolls should still add approximately 150,000 jobs monthly. Overall GDP growth is projected to slow from 2.1% in the first quarter to 1.3% by the fourth quarter, averaging 1.7% for the year. Elevated interest rates are suppressing corporate fixed investment, forecast to decelerate to 1.8%, while real personal consumption expenditure eases to 1.5%. The fiscal deficit is expanding to 6.8% of GDP, but its economic stimulus effect is waning. Residential investment is expected to contract by 2.5% as mortgage rates hold above 7%. The report assigns a 25% probability to a recession, lower than the 35% market consensus, suggesting a soft landing despite the growth slowdown and persistent inflationary pressures.