JPMorgan, Citi Predict Two Supersized Fed Cuts This Year

“With the benefit of hindsight, it’s easy to say the Fed should have cut this week,” JPMorgan’s Feroli wrote. “Even if the softening in labor market conditions moderates from here going forward, it would seem the Fed is at least 100 basis points offsides, probably more.”

Interest-rate swaps show that traders see a more-than-70% chance of half-point move in September, and are pricing in a total of about 115 basis points of reductions by year-end. In fed funds futures, a wave of buying swept the market Friday, consistent with bank calls for aggressive easing.

The price action harkens back to the divide that existed at the start of the year, when forecasts for as many as six quarter point cuts this year mirrored market-implied expectations. Fed policymakers at that point were anticipating easing by 75 basis points, based on their median forecast, which in June changed to 25 basis points.

Speaking on Bloomberg Television Friday afternoon, Chicago Fed President Austan Goolsbee said the central bank won’t overreact to any one piece of economic data, echoing comments by Powell on Wednesday.

Goldman economists led by Jan Hatzius added a third quarter-point rate cut, in November, to their previous 2024 forecast for September and December moves after the jobs report. While the July data may overstate weakness in the labor market, if the August report is also soft, a half-point rate cut in September “would become likely,” they wrote.

A team at TD Securities including chief U.S. macro strategist Oscar Munoz sees an additional quarter-point rate cut in November to go along with the prior forecast of policy easing in September and December. They see the central bank easing by 25 basis points at each meeting next year until November 2025.