Has Wall Street reached a consensus? Both Goldman Sachs and JPMorgan Chase models indicate: the risk of a U.S. recession is rising

Affected by the uncertainty of tariff policies and weak economic data, Wall Street's concerns about the U.S. economic outlook are intensifying.

Models from several top investment banks show that the market-implied probability of an economic recession has significantly increased, sounding the alarm for the U.S. economic outlook.

According to JPMorgan Chase's model, the market-implied probability of recession has jumped from 17% at the end of November last year to 31%. Goldman Sachs' model also shows a similar trend, with the risk of recession rising from 14% in January to 23%. Due to recession expectations, the U.S. dollar index has fallen to 104.30 as of the time of writing.

President Trump's tariff policy has exacerbated market turmoil. Although U.S. Secretary of Commerce Howard Lutnick hinted at possible tariff reductions for Mexico and Canada, market confidence has not yet recovered. Concerns over Trump's trade policies, combined with recent weak economic data, have collectively raised recession expectations.

Weak economic data, multiple indicators flashing red

Recent U.S. economic data is not optimistic. Manufacturing activity in the U.S. nearly stalled last month, consumer confidence fell to its lowest level since 2021, personal spending unexpectedly declined, and real estate market data was also disappointing.

Mohamed A. El-Erian, the president of Queen's College at Cambridge University, believes that the probability of recession has risen from 10% at the beginning of the year to 25% to 30%. He is particularly concerned about persistent inflationary pressures and the decline in consumer and business confidence.

It is important to note that financial markets are not always accurate in predicting economic cycles. In 2023, the market's bets on an economic recession failed. This time, under the dual pressure of slowing economic growth and rising inflation, stagflation concerns are intensifying.

On March 4, Nick Timiraos, known as the "new Federal Reserve correspondent," published an article in The Wall Street Journal expressing concerns about the U.S. economic outlook. He believes that tariffs are pushing the U.S. toward a "stagflation" dilemma characterized by weak economic growth or stagnation and rising prices.

Faced with this tricky situation, the Federal Reserve finds itself in a dilemma: either choose to raise interest rates to curb inflation, which may further harm the job market; or choose to lower interest rates to stimulate the economy, which may lead to uncontrolled inflation.

Christian Mueller-Glissmann, head of asset allocation research at Goldman Sachs, pointed out that expectations for Federal Reserve rate cuts and changes in the yield curve are important indicators signaling recession risk. Additionally, the rising price of VIX ETFs, which track the VIX index, also reflects investors' concerns about an economic recession.

Nevertheless, there are still bright spots in the U.S. economy. The unemployment rate remains around 4%, and income indicators are performing strongly. Cayla Seder, a macro multi-asset strategist at State Street Global Markets, stated:

It is still too early to assert that economic growth is slowing