The global economy faces four likely scenarios — none particularly great — though there’s a 1-in-5 chance a recession won’t happen, according to economists at JPMorgan Chase. In the most likely scenario, U.S. firms are likely to hit a contraction in the second half of 2023. Other possible outcomes are a recession late next year or in 2024. At worst, the economy will tip over into recession in early 2023. JPMorgan Bruce Kassman and others in a note to clients. “The dominant event across the four scenarios presented is a US recession before the end of 2024. But the timing of that turning point, the Fed’s policy path and the repercussions for the rest of the world differ.” Much depends on how the tightening of monetary policy by the Federal Reserve System and other global central banks plays out. The Fed and its peers have raised benchmark interest rates dozens of times this year in an effort to control inflation running at the highest levels in four decades. JPMorgan’s most likely case, with a 32% probability, sees a recession taking hold in about a year as the lagged impact of monetary policy tightening gradually erodes growth. “While we avoid a recession in the near term, our baseline assumes that the US will slip into a mild recession in late 2023,” the firm said. “This scenario puts a brake on building US credit conditions and a rising dollar at the center of the outlook.” Kassman and his team expect the Fed funds rate to reach 5% in 2023, roughly in line with market prices. Rising interest rates have led to a strengthening of the dollar, which is up roughly 12% year-to-date against a basket of global peers. This currency trend has in turn seen inflation of US exports to other countries that hold large amounts of dollar-denominated debt. In the second-most-likely scenario, JPMorgan assigns a 28% chance of no recession until 2024. The event is delayed because of hopes that the Fed’s pause in rate hikes coincides with falling inflation and resilient growth. However, the optimistic outlook does not come true. “The hope behind the pause — that restrictive stances would gradually bring inflation back into comfort zones — has not materialized,” Kassman wrote. “With increased inflation entrenched, interest rates will have to rise substantially further and a global recession will occur in 2024.” The other two scenarios have the same 20% probability. One of them is that “too bad [is] already done” and the global economy is headed for contraction. This is the least positive set of circumstances. “There is enough support to avoid a recession in early 2023, but we believe it would be a mistake to ignore the risks associated with tightening financial conditions and weakness in Europe [and] in China,” Kassman said. “We see a one-in-five risk that the U.S. will break with Europe and drag the global economy down early next year.” Finally, the most encouraging outlook is another 20 percent chance of a “soft landing” in which the Fed can keep its aggressive stance and reduce inflation without destroying the economy. “We think it is a mistake to rule out a soft landing scenario (probably 20%) in which we avoid a recession,” the note said. supply is enough to push inflation down to 2% without a sharp deterioration in labor markets.With growth running at a moderate pace, central banks may begin to normalize their policy stances in late 2023, laying the groundwork for an extended global expansion .” JPMorgan isn’t the only forecasting firm on Wall Street that sees at least a reasonable chance the Fed can keep the economy out of recession. Goldman Sachs also issued an outlook over the weekend saying the economy is likely to experience a “soft” or “soft” landing, although it expects GDP growth of just 1% or so next year.