J.P. Morgan has revised its expectations for the U.S. Federal Reserve to cut interest rates, expecting a reduction of 25 basis points at the upcoming meeting.
Political Influence on Monetary Policy
The shift in expectations comes with President Donald Trump's nomination of Stephen Miran, the current chair of the Council of Economic Advisers, to temporarily join the Fed's governing board. Miran will replace Governor Adriana Kugler, whose departure leaves a vacancy until a permanent appointment is made in February 2026. J.P. Morgan suggested Miran's presence could increase divisions within the rate-setting committee, potentially leading to dissenting votes.
Role of Economic Data
The Fed's decision in September may hinge on August employment figures. According to J.P. Morgan, an unemployment rate of 4.4% or higher might justify a larger cut, while a lower reading could prompt resistance from policymakers focused on inflation. Traders are now pricing in an 89.2% chance of a September rate cut, up sharply from 37.7% just a week ago, CME FedWatch data shows.
Potential Powell Successor
Separately, J.P. Morgan noted that Fed Governor Christopher Waller has emerged as the frontrunner to succeed Jerome Powell as chair. Analysts believe Waller's appointment could reduce uncertainty over how the Fed responds to new economic data, a development likely to support longer-dated bonds.
Observing the shifts in policy and economic data, J.P. Morgan provides an analytical view on the Fed's future actions, which could significantly impact financial markets.
