JPMorgan lowered its US economic growth forecast by 1 percent for the third quarter on Thursday blaming recent developments in the US economy for the downward revision. It also said it now expected the Federal Reserve not to raise interest rates until the middle of 2013 at the earliest.
The bank said it expected gross domestic product growth to be no higher than 1.5 percent rather than 2.5 percent previously forecast for the quarter. However, it suggested growth in the fourth quarter of the year may be slightly better at 2.5 percent, although this was still down on a previous forecast of 3 percent.
JPMorgan also revised down its forecast for first half growth next year to 2 percent from 2.5 percent blaming the impact of higher taxes and lower federal government spending.
US markets have experienced a torrid week in which a slew of economic data pointed to slowing economic growth, and coming off several weeks of congressional wranging that frustrated markets before a final vote to raise the debt celing.
Despite the agreement to both raise the debt ceiling by $2.4 trillion until 2013 and introduce public spending cuts of $2.1 trillion over the next decade, analysts told CNBC.com earlier this week they still expected the US to lose its triple A credit rating.
Credit ratings agencies Moody’s and Standard & Poor’salso signaled they were still willing to withdraw the world’s largest economy's triple A by putting the US economy on a negative outlook.
In its research note JPMorgan said early analysis appeared to show economic activity had slowed in part in response political leaders’ failure to reach agreement over the debt ceiling sooner. JPMorgan said it now expected US consumption to be lower, advancing by no more than an annual rate of 2 percent in the third quarter.
“We had previously partly discounted some fiscal drag in our forecast for early next year, though left in some chance that we could see an extension of fiscal support. Those chances seem to be diminishing and it now looks more likely that growth could hit a pothole early next year,” it added.
“For some time now we have been highlighting downside risks to our already below-consensus growth forecasts. Given some recent developments, we feel compelled to lower our projection for GDP over the next four quarters.”
Meanwhile, the bank said it saw little improvement in the US unemployment rate suggesting it was unlikely to fall below 9 percent in the next year.
It said while it had previously believed the Federal Reserve would look to increase interest rates at the start of 2013, it now believed there would be little improvement in the economic output gap until the second half of next year, meaning a rate rise was unlikely until the middle of the following year.
In the meantime, JPMorgan said, it believed the Fed would undertake further measures to deliver monetary stimulus.
However, it ruled out a return to quantitative easing adding: “We don't see more asset purchases forthcoming but we do think the Committee will take incremental steps to signal increasingly accommodative policy.”