JPM's Michele: See Growth Slowdown, But Not Recession Amid $100 Oil

Summary

• Higher real yields are already impacting the U.S. economy, increasing input costs for energy and consumer spending.
• With oil at $100 per barrel, JPMorgan expects significant growth slowdown but no recession, coupled with a slight rise in inflation.
• The Federal Reserve is in a wait-and-see mode, balancing risks between labor market weakness and energy-driven inflationary pressures.
• Bond market volatility remains muted, indicating an orderly sell-off and confidence in a U.S. administration off-ramp for Middle East tensions.
• Oil prices have surged from $60 to $100; extreme forecasts of $200 are seen as unlikely, with demand destruction expected at $120-$150.
• The ECB and Bank of England, with single mandates on inflation, are likely to hike rates as headline inflation rises, ignoring core distinctions.
• Iran's patience and strategic control over the Strait of Hormuz via drones pose a persistent risk to global oil supply, complicating geopolitical resolutions.
• Market sentiment is anchored on the assumption that the U.S. will seek de-escalation before midterm elections, providing temporary stability.