Federal Reserve’s 50 Basis Point Rate Cut Hints at Possible Future Reductions, Says JPMorgan

Following the Federal Reserve’s 50 basis point rate cut announced on Wednesday, JPMorgan strategists suggest that more significant reductions could be on the horizon if the labor market continues to show signs of weakening. The Federal Open Market Committee (FOMC) lowered the federal funds target range to 4.75%-5.0%, with Fed Chair Jerome Powell describing the cut as a “recalibration” to support the labor market in the face of economic risks.

While the FOMC’s “dot plot” projections indicate two additional 25 basis point cuts this year, followed by four more next year, JPMorgan anticipates a quicker pace of rate cuts. The firm expects another 50 basis point reduction at the next meeting in November, provided that upcoming jobs data indicate further softening in the labor market.

In a note to clients, JPMorgan’s strategists highlighted that more modest labor data could support the FOMC’s scenario of gradual 25 basis point cuts throughout the rest of the year.

The Fed's revised policy statement suggests that the risks to employment and inflation objectives are now “roughly balanced,” hinting that monetary policy is approaching a neutral stance. Powell’s optimistic remarks about the strength of the economy and labor market during the press conference were interpreted by JPMorgan as hawkish, signaling that the Fed may continue to act aggressively if needed.

JPMorgan’s strategists also noted that while larger cuts could indicate concern about economic growth in other contexts, Powell emphasized that this move was a positive one, made possible by easing inflation, allowing the Fed to support a strong labor market.

Powell reiterated that future policy changes will be data-driven, with particular focus on labor market conditions. Should the labor market continue to weaken, JPMorgan predicts larger cuts ahead. However, if job growth stabilizes, the Fed is likely to take a more gradual approach toward neutral rates.