JPMorgan Admits Central Banks Need A Recession “To Cure Inflation”

Over the past few months we have repeated a statement which – because it is controversial and because it is true – sparked feigned outrage among the financially illiterate macrotourists (which these days is the vast majority of the financial commentariat): we said that in light of the galloping inflation which has crushed BIden’s approval ratings and has ensured a landslide loss for Democrats in the midterms, the Fed desperately wants to create a recession (and, at this rate, it will get it).

Today, our tinfoil conspiratorial theories once again were validated today when none other than JPMorgan’s European economists admitted that…

JPM writes that:

The BoE has an inflation problem, and resolving it likely will require an uncomfortable adjustment. While most of the current overshoot will be transitory due to the unusually high contribution of energy and other goods prices, the labor market continues to tighten rapidly and is causing increasing concern about where inflation will settle over the medium term.

While the rest of the note is self-explanatory, it’s notable that even JPM admits that mere stagnation, i.e. a “soft landing”, is no longer sufficient:

Even a GDP stagnation may not be enough: Based on these model results we run simulations for the unemployment rate under several alternative GDP growth scenarios. These are only illustrative and are based on past behavior. But they suggest the labor market will remain tight in the absence of a very weak growth outturn. Our own weak growth scenario anticipates output rising at an annualized pace of just 0.5% in 2H22. However, given we expect growth in the surrounding quarters to be above 1%, lags in the model leave the unemployment rate in this scenario still falling to 3% by the end of 2023 (Figure 3). – READ MORE