JPMorgan strategist Fabio Bassi said the Fed is more likely to cut interest rates by 25 basis points at its September meeting.
Bassi noted that despite weak employment data, inflation remains high, and that an aggressive 50 basis point cut is unlikely.
According to Bassi, the risk of a recession stands at 40%. Markets, however, anticipate only a limited easing of growth risks. The analyst also cited the increasing political pressure following the dismissal of Fed member Lisa Cook, emphasizing that the Fed’s independence remains intact. He stated that if the economic weakness proves temporary, the Fed will likely implement a shallow rate cut, with a limited pullback in risk assets and a strong dollar expected.
Markets are pricing in an 88% probability that the Fed will cut interest rates by 25 basis points on September 17. This expectation was strengthened after August’s announcement of a mere 22,000 job gain and a 4.3% unemployment rate.
Citi’s chief economist, Andrew Hollenhorst, said the weak data supports rate cuts but doesn’t warrant a 50 basis point step. Nomura’s David Seif, meanwhile, said the Fed will hedge against labor market weakness with “insurance cuts.” Apollo’s Torsten Slok, meanwhile, predicted that easing will continue despite inflation remaining above target.
*This is not investment advice.