- J.P. Morgan forecasts a 25-basis-point Fed rate cut in September due to labor weakness.
- Goldman Sachs warns U.S. growth is slowing, citing tariffs and weak job market.
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Economic tremors ripple across financial markets as shifting global dynamics push major banks to alter their interest rate forecasts. J.P. Morgan now expects the Federal Reserve to cut interest rates by 25 basis points at its September meeting, moving up its forecast from December.
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The shift reflects signs of labor market weakness and uncertainty surrounding President Donald Trump's latest Fed nomination.
The bank still sees three more quarter-point cuts following the September move before the Fed pauses.
"For [Fed Chair Jerome Powell], the risk management considerations at the next meeting may go beyond balancing employment and inflation risks," analyst Michael Feroli said.
The firm also highlighted that lower net immigration and pressure from the Trump administration for lower rates could further weaken the U.S. dollar.
Is The US Economy Approaching A Standstill?
J.P. Morgan joined other Wall Street banks such as Goldman Sachs in predicting a September cut.
Last week, Goldman Sachs chief economist Jan Hatzius warned that job market weakness is linked to a broader slowdown, worsened by trade frictions.
"Friday's jobs numbers reinforced our view that U.S. growth is near stall speed," Hatzius stated.
Goldman estimates real GDP grew just 1.2% annualized in the first half of 2025, nearly a full percentage point below potential.
The bank expects similar softness in the second half, citing higher tariffs as a drag on output, consumer spending, and hiring.
Hatzius warned that most of the pass-through from tariffs to consumer prices is still ahead, likely weighing on real disposable income.
Goldman's baseline calls for three 25-basis-point cuts in September, October, and December, followed by two more in the first half of 2026. A 50-basis-point cut in September could be under consideration if unemployment rises again.
Markets currently assign an 86% probability to a quarter-point cut in September, with a 55% chance of another cut in October.
How Trump’s Nomination Shapes Fed Rate Decisions
Last week, Trump nominated Stephen Miran, chair of the Council of Economic Advisers, to temporarily replace outgoing Governor Adriana Kugler on the Fed board. Last month, Miran argued against the risk that tariffs would cause an inflation increase.
Trump’s economic team also reportedly considered current Governor Christopher Waller as Jerome Powell's potential successor when Powell's term ends next year.
Notably, Waller dissented in July's meeting, favoring a rate cut while Powell and most policymakers held rates steady.
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