JPMorgan expects the Fed to cut its benchmark interest rate by 100 basis points this year

Fed Chairman Jerome Powell’s speech at Jackson Hole was a clear signal that a rate cut was imminent. The interest rate is currently at 5.25% – its highest level in more than two decades.

But a raft of economic data and hints from FOMC members — including Powell himself — are now prompting analysts to question whether the cut will be more significant than previously anticipated. Powell’s “risk bias,” some analysts say, is beginning to shift.

Earlier, institutions such as Bank of America and Vanguard had considered cutting interest rates by 0.25%, or 25 basis points, next month, but arguments for a 50 basis point (0.5%) cut are starting to gain momentum.

For example, JPMorgan Chase said this week that it expects the Federal Reserve to cut interest rates by 100 basis points — a full percentage point — by the end of the year.

Since there are only three meetings left, that means at least one of the cuts must be of 50 basis points, paired with two cuts of 25 basis points.

The shift in expectations comes as turbulent data continues to make the FOMC’s dual mandate more difficult to read.

This dual mission is to reduce inflation – which the government has so far been relatively successful in doing without pushing the economy into recession – but also to maximize employment opportunities.

A a report Unemployment rates in urban areas are slowly increasing while the U.S. Bureau of Labor Statistics reported this week that Demand for workers soften

On the contrary, productivity is on the rise, according to the Bureau of Labor Statistics. He said earlier this month.

This has created “a strange mix of growing concerns about the U.S. sliding into recession coupled with financial markets’ optimism about the future trajectory of business performance,” JPMorgan wrote in a note this week.

The bank added in the memo, which it reviewed, luck The Fed appears to be shifting from a gradual stance to a fear of cutting rates too late.

Federal Reserve Chairman Austin Goolsbee expressed this concern in an exclusive interview with luck Earlier this month.

“The circumstances were very different when we set the policy rate at this level,” he warned. “Every month that we have inflation like we have just had – where inflation is lower than expected – we tighten monetary policy in real terms.”

As a result, he is asking himself and his colleagues on the FOMC to ponder: “When does the Fed really need to be this hawkish?”

“The answer is you just want to be as tight as you have to be and if you fear the economy is about to overheat,” he explained. “In my view, that’s not what a stressed economy looks like.”

“So I think we need to realize that these restrictions are going to last for a very long time, because if we do, we’re going to have to think about the real side of the mandate, and jobs are going to go down the drain.”

Fed reassesses risks

Whether experts are predicting a 25 basis point cut, a 50 basis point cut, or even an emergency cut off the schedule, the one thing they all agree on is that the FOMC is changing course.

In his speech in Jackson Hole last week, Fed Chairman Powell said: “The time has come to adjust policy. The direction is clear, and the timing and pace of rate cuts will depend on incoming data, evolving expectations, and the balance of risks.”

This suggests that Powell and his colleagues are looking to balance both sides of their mandate, as Wharton professor Jeremy Siegel writes in his book Weekly comment For investment experts WisdomTree.

In his commentary on Monday, Siegel wrote: “While Powell commented that some of the increase in unemployment was due to increased labor supply, he also highlighted clear weakness in the labor market and that further weakness is unwelcome.”

The University of Pennsylvania professor emeritus of finance is in the camp of cutting the benchmark interest rate — which is currently between 1% and 2%. 5.25% and 5.5%-“To 4% or less without delay.”

In other words, [Powell] “The Fed will not seek to use high unemployment as leverage to finish the job of getting inflation down to 2%. That’s a very important shift,” wrote Siegel, who is also chief economist at WisdomTree.

While JPMorgan may not agree with Siegel’s call for an immediate rate cut, analysts at America’s largest bank have also noted the change in Powell’s “risk bias,” as they call it.

“The message in Fed Chairman Powell’s speech in Jackson Hole last week confirms that this shift in risk bias has occurred and that the Fed does not want to see business conditions improve further,” they wrote.

“We believe this puts the Fed on track to cut interest rates by about 100 basis points by the end of this year.”

If the Fed doesn’t cut rates at all this year, Powell will not only face a market revolt, but it could also push the economy into recession, some analysts say.

“We are not saying a recession is coming,” Thierry Weizmann and Gareth Perry, FX and rates strategists at Macquarie, wrote in a note seen by Reuters. luck, But he added that if no cuts were made, “the chances of recession would be much greater.”