J.P. Morgan Predicts Fed Rate Cuts

By Rashika Singh

(Reuters) – J.P. Morgan now expects the U.S. Federal Reserve to cut interest rates by 25 basis points at its September meeting, citing signs of weakness in the labor market and uncertainty surrounding President Donald Trump’s latest Fed nomination.

The brokerage had earlier forecast one 25-basis-point rate cut in December, but noted in a Thursday note that risks now point to an earlier move, followed by three additional quarter-point cuts 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,” said J.P. Morgan analyst Michael Feroli.

On Thursday, Trump nominated Stephen Miran, chair of the Council of Economic Advisers, to fill a temporary seat on the Federal Reserve’s governing board, replacing outgoing Governor Adriana Kugler. The White House is actively seeking a candidate for a permanent position on the board, which becomes vacant on February 1, and is also considering potential replacements for Powell, whose term ends on May 15, 2026.

Miran’s confirmation before the September 16–17 policy meeting is uncertain, but J.P. Morgan noted his presence could increase divisions within the rate-setting committee.

This follows Trump’s repeated but unsuccessful attempts to pressure Fed policymakers to lower interest rates. By appointing Miran, even temporarily, Trump could gain a more direct path to influence monetary policy at the world’s most influential central bank.

The appointment could further intensify internal divisions at the Fed, with J.P. Morgan suggesting Miran’s presence might lead to three dissents. BofA Global Research predicts at least one more dissent in September if rate cuts do not occur, given Miran’s critical stance towards the Fed.

The Fed’s decision may depend on August’s job data; J.P. Morgan indicated that an unemployment rate of 4.4% or higher could justify a larger cut, while a lower rate might prompt resistance from inflation-conscious policymakers.

Additionally, J.P. Morgan stated that Fed Governor Christopher Waller is emerging as the frontrunner to succeed Jerome Powell as Fed Chair, which would likely be welcomed by financial markets. Analysts at Barclays agreed, noting that Waller’s appointment could reduce uncertainty on the Fed’s response to economic data, potentially supporting longer-dated bonds.

Traders are now pricing in an 89.2% chance of a rate cut in September, up from 37.7% last week, according to CME Group’s FedWatch tool.