JPMorgan Asset Management Executive Believes 'Market Is Right To Be Penciling In' Rate Cuts

JPMorgan Asset Management is of the view that a recession in the U.S. is a virtual certainty and the Federal Reserve is likely to cut interest rates by the third quarter as growth fizzles out, according to a report.

What Happened: "The market is right to be penciling in cuts," said Seamus Mac Gorain, head of global rates in London, according to a Bloomberg report.

He further stated that inflation is too high and it will take a recession to bring it back down, while adding that U.S. banking woes "have only made a recession more likely."

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It is noteworthy that Fed officials have countered the widely prevalent view in the market that interest rate reductions could materialize later in the year. Mac Gorain supports the view of swaps traders who project that the central bank will pivot as soon as September to arrest slowing growth.

JPMorgan favors Treasuries as a strong hedge against a slowdown and sees potential for 10-year yields to fall below 2.5% in case of a deep downturn, the report said.

Debt Ceiling: In regard to the debt ceiling crisis, Mac Gorain said the market will witness volatility just like in 2011 and that will be enough to push the political process ahead.

"It's hard to say exactly when that will happen, whether it will be in the next few weeks or whether it might be a little bit later in the summer. We have shifted away from very short-dated US Treasury bills. We can get a higher yield for example, by owning Japanese bills instead of Treasury bills," he said, according to the report.

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