J.P. Morgan Predicts Fed Rate Cut in September
Fed Rate Cut Expectations Surge as Trump Appoints New board Member,Powell’s Future in Question
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The Federal Reserve is facing mounting pressure as expectations for interest rate cuts intensify,fueled by shifting economic data and a recent appointment by former President Trump that could reshape the central bank’s dynamics. Market sentiment has dramatically shifted, now pricing in a high probability of a rate cut in September.
J.P.Morgan Predicts Earlier Rate Cuts, Potential for Division
J.P.Morgan has revised its forecast, anticipating the Fed may move to cut rates before December, previously their expected timeframe. They now predict four quarter-point rate cuts in total before the Fed pauses its easing cycle. This shift comes as analysts believe Fed Chair Jerome Powell will need to broaden his risk management considerations beyond the conventional balance of employment and inflation.
“For (Fed chair Jerome Powell), the risk management considerations at the next meeting may go beyond balancing employment and inflation risks,” noted J.P.Morgan analyst Michael Feroli.
Trump’s Influence: Miran Nomination and Powell’s Position
Former President Trump has further complicated the landscape with the nomination of Stephen Miran, chair of the Council of Economic advisers, to a temporary seat on the Federal Reserve’s governing board. This move, replacing outgoing Governor Adriana Kugler, is seen as an attempt to exert greater influence over monetary policy. The White House is also actively seeking a permanent replacement for a board seat becoming vacant on February 1st, and is even considering potential successors to Powell, whose term ends in May 2026.
While miran’s confirmation before the September 16-17 policy meeting is uncertain,J.P.Morgan suggests his presence could exacerbate existing divisions within the rate-setting committee, possibly leading to three dissents. Trump’s repeated attempts to pressure the Fed to lower rates have been unsuccessful, but this appointment provides a potentially more direct avenue for influence.
Increased Dissent Expected at September Meeting
Analysts at BofA Global Research anticipate at least one dissent at the September meeting if rate cuts are not implemented, citing Miran’s previously expressed critical views of the central bank. The upcoming August jobs data will be pivotal. J.P.Morgan suggests an unemployment rate of 4.4% or higher could justify a more substantial rate cut, while a lower rate may face resistance from policymakers prioritizing inflation control.
Waller Emerges as Frontrunner to Succeed Powell
Adding another layer to the evolving situation, J.P.Morgan identifies Fed Governor Christopher Waller as the leading candidate to succeed Jerome Powell as Fed Chair. This potential transition is viewed favorably by financial markets. Analysts at Barclays concur, believing Waller’s appointment would reduce uncertainty surrounding the Fed’s response to economic data, potentially bolstering longer-dated bonds.
Market Reaction: Rate Cut Probability Soars
Traders have responded decisively to these developments. According to CME Group’s FedWatch tool, the probability of a rate cut in September has surged to 89.2%, a significant increase from 37.7% just last week. This dramatic shift reflects growing confidence that the Fed will begin easing monetary policy in the near term, driven by economic indicators and the changing composition of the Federal Reserve board.