Michael Feroli, Chief US Economist at JPMorgan, recently stated that the Federal Reserve should lower interest rates by 50 basis points at its September meeting.
On Thursday (September 5th) local time, Feroli said in a media interview, "We believe they should return to neutral interest rates as soon as possible." He added that the highest point of the central bank's neutral interest rate is about 4%, which is 150 basis points lower than the current level, so "accelerating the pace of interest rate cuts is fully justified.
The "Federal Reserve Watch" tool of Zhishang Bank shows that the market expects the bank to cut interest rates by 25 basis points or 50 basis points at its meeting in two weeks. Currently, these two options are quite similar, with a probability of less than 60% at 50 basis points and slightly over 40% at 25 basis points.
Feroli said, "If you wait until inflation returns to 2% before taking action, you may have waited too long. Although inflation is still slightly above the target, the unemployment rate may have been slightly higher than their perceived level of full employment
In June, the baseline forecast of the Feroli team was the first interest rate cut in November. He recently explained, "Currently, both employment and inflation are facing risks. If one of these risks begins to manifest, you should reverse the policy direction
On Friday of this week, the US Department of Labor will release its August employment report. In the July non farm payroll report, the US unemployment rate rose to 4.3%, triggering the "Sam's Rule" recession indicator.
Nevertheless, Feroli does not believe that the economy is "collapsing". "If the economy is really collapsing, I think the Federal Open Market Committee (FOMC) will have a reason to cut interest rates by more than 50 basis points at the next meeting
It is worth mentioning that yesterday, hawkish officials of the Federal Reserve and Atlanta Fed Chairman Bostic also changed their minds - they are ready to start lowering interest rates. Bostic also mentioned that he has shifted his focus to the "dual mission" of the central bank.