Wall Street boosted forecasts for a rate cut from the Federal Reserve after a disappointing July jobs report stoked fears of a recession, with a JPMorgan economist saying there was even reason to support an unplanned rate cut.
Policymakers won’t meet again until Sept. 17 and 18, giving investors a month and a half to worry about the economy and markets after the central bank kept interest rates steady at its last meeting on Wednesday.
To be sure, Fed Chairman Jerome Powell is likely to drop more hints about rate cuts at the Jackson Hole meeting later this month. The Fed has adjusted rates between meetings in the past, though this has typically occurred during crises such as the COVID-19 pandemic in 2020 and the 2008 financial crisis.
“In hindsight, it’s easy to say the Fed should have cut rates this week,” JPMorgan chief U.S. economist Michael Feroli wrote in a note on Friday. “It’s also easy to say they were How soon and how much will be cut are more difficult questions.
He added that even if the weakness in the labor market levels off later, the Fed will still appear “overside” by 100 basis points or more.
As a result, Feroli expects the Fed to cut interest rates by 50 basis points at its September meeting, another cut at its November meeting, and then 25 basis points at each subsequent meeting.
But he could also see a situation in which Powell and company take more aggressive action.
“From a risk management perspective, we believe there is a strong case for action before September 18,” Feroli wrote. “But maybe Powell doesn’t want to add more noise to an already eventful summer.”
In fact, the market was hit hard by the twists and turns of the U.S. election season alone. After the first presidential debate and the assassination of Donald Trump, the “Trump Deal” was in the ascendant, but after Vice President Kamala Harris replaced Joe Biden as the Democratic nominee, the “Trump Deal” ” Losing momentum quickly.
An emergency rate cut between Fed meetings could even spark panic rather than calm concerns, as it could signal a sharp deterioration in sentiment among central bankers who have long insisted they are in no rush to ease monetary policy.
As far as JPMorgan Chase is concerned, it is currently expected that the Federal Reserve will eventually lower the benchmark interest rate to around 3%, which means that the interest rate cuts will continue until the third quarter of 2025 and will be reduced by more than 200 basis points from the current interest rate of 5.25%-5.5%. .
Others on Wall Street urged investors not to overreact to the sudden weakness in employment. Claudia Sahm, a former Fed economist who developed the “Sahm Rule” recession indicator, said wealth On Friday, she said she was not currently worried about the U.S. slipping into recession.
While her eponymous rule was triggered by the latest data with the unemployment rate climbing to 4.3%, she noted that household incomes are still growing, while consumer spending and business investment remain resilient.
Still, Sam, now chief economist at investment firm New Century Advisors, said recent trends in the labor market look weak at best.
“It’s very accurate over time, so it shouldn’t be ignored,” she added, noting that “recessions can develop slowly and then come very quickly.”
Similarly, Morningstar Chief U.S. Economist Preston Caldwell said in a note on Friday that the market was overreacting to the non-farm payrolls report, but cautioned that it was still bearish news. He said policymakers would have cut interest rates if the data had been available during the last Fed meeting.
“Once unemployment rises, it is likely to continue to rise,” Caldwell wrote. “The rising unemployment rate is part of the vicious process of economic contraction. People losing their jobs will lead to less spending, which will lead to companies cutting back on spending, and the unemployment rate will rise further.