JPMorgan Chase & Co. has moved up its forecast for the first Federal Reserve rate cut to September, abandoning its previous December timeline as labor market data weakens and political dynamics shift within the central bank.
The investment bank now expects a 25-basis-point reduction at the September 16-17 Federal Open Market Committee meeting, according to Reuters, followed by three additional quarter-point cuts before the Fed pauses its easing cycle.
Labor Market Cracks Drive Policy Shift
Recent employment data have strengthened the case for earlier Fed action. Initial jobless claims rose to 226,000 for the week ending August 2, exceeding the 221,000 consensus and ending a five-week decline streak.
More concerning for policymakers, continuing claims climbed to 1.9 million—the highest level since November 2021—indicating laid-off workers are struggling to find new employment.
Trump Nomination Adds Federal Reserve Complexity
President Donald Trump‘s Thursday nomination of Stephen Miran, Chair of the Council of Economic Advisers, to replace outgoing Governor Adriana Kugler has introduced new variables into Fed dynamics.
JPMorgan analyst Michael Feroli noted that Miran’s potential confirmation before September’s meeting could increase divisions within the rate-setting committee.
“In the off chance Miran is governor by the time of the next meeting, that could imply three dissents. That’s a lot of dissents,” Feroli wrote.
Market Pricing Reflects Growing Dovish Expectations
Traders have dramatically shifted rate cut expectations, with CME Group’s FedWatch tool showing 91.4% probability of a September reduction, up from just 37.7% last week.
The Fed’s decision may hinge on August employment data. JPMorgan indicated an unemployment rate of 4.4% or higher could justify a larger 50-basis-point cut, while lower readings may prompt resistance from inflation-focused policymakers.
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