On 7/8, JPMorgan Chase predicted the Federal Reserve (Fed) will cut interest rates by 25 basis points (0.25%) at its September meeting. This prediction is based on a weakening US job market and uncertainty surrounding President Donald Trump's nomination of a new member to the Fed's Board of Governors.
JPMorgan, the largest bank in the US, previously anticipated a 25 basis point rate cut in December. This forecast has been moved forward after the Fed held rates steady for three consecutive meetings.
"For Fed Chair Jerome Powell, risk management at the upcoming meeting might go beyond balancing labor market and inflation concerns," said Michael Feroli, an analyst at JPMorgan.
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Fed Chair Jerome Powell at the July meeting. Photo: Reuters |
Fed Chair Jerome Powell at the July meeting. Photo: Reuters
On 7/8, President Trump nominated Stephen Moore, chairman of the Council of Economic Advisers, to the Fed's Board of Governors. Moore would temporarily replace Adriana Kugler, who resigned the previous weekend. While it remains uncertain whether the Senate will confirm Moore before the Fed's September policy meeting, JPMorgan believes his presence would deepen divisions among Fed officials regarding interest rates.
At the July meeting, for the first time in over 30 years, two members of the Board of Governors, Michelle Bowman and Christopher Waller, both Trump appointees, dissented from the majority decision. Waller is even considered a potential successor to Powell when his term ends in May of next year.
Over the past few months, President Trump has repeatedly pressured the Fed to cut rates and criticized Powell for not adjusting monetary policy. "Assuming Moore becomes a governor before the September meeting, the board will have three dissenting votes. That's a lot," Feroli stated.
The Fed's decision also hinges on the August jobs report. JPMorgan suggests an unemployment rate of 4.4% or higher could prompt a more aggressive rate cut. Conversely, a lower rate might lead to hesitation due to inflation concerns.
Investors currently predict a 91.4% chance of a Fed rate cut in September, three times higher than the previous week, according to the CME Group's FedWatch Tool.
Addressing Powell's potential successor, JPMorgan noted that Waller is emerging as a leading candidate. They believe Waller's nomination would be well-received by financial markets.
Analysts at Barclays (UK) share this view, as Waller's selection would reduce uncertainty about the Fed's response to economic data.
Ha Thu (according to Reuters)
