JPMorgan sees Fed cutting rates 5 times starting in September

JPMorgan has significantly upgraded its Fed rate cut forecast, now anticipating multiple cuts, potentially four, starting as early as September, driven by softer labor market data and increasing uncertainty around Fed leadership. This revised outlook, which could see the benchmark rate fall to 3.25%-3.50% by December, has quickly aligned with market expectations, with nearly 90% probability now assigned to a September 25-basis-point cut, establishing JPM's view as Wall Street's new consensus.

Analysis

JPMorgan has executed a significant pivot in its monetary policy outlook, now forecasting four quarter-point Federal Reserve rate cuts in 2025, beginning as soon as September. This represents a substantial acceleration from its previous forecast of a single cut. The revision is predicated on two primary drivers: a cooling US labor market, evidenced by a rise in the unemployment rate to 4.2% and an increase in weekly jobless claims, and mounting political complexity within the Federal Reserve. The nomination of a dovish temporary governor, Stephen Miran, could reportedly lead to three or more dissenting votes against holding rates, injecting a new layer of uncertainty into policy decisions. Market sentiment has rapidly converged with this new, more dovish stance, with the CME FedWatch tool indicating that traders are now pricing in a nearly 90% probability of a 25-basis-point cut in September, a dramatic increase from 38% a week prior. This alignment has established JPMorgan's forecast as the new consensus on Wall Street, with the Fed's benchmark rate potentially declining to a 3.25%-3.50% range by year-end from its current 4.25%-4.50% if this scenario materializes.

Key Decisions for Investors

• Given the high probability priced in for a September rate cut, investors should consider adjusting portfolios to favor assets that benefit from a lower rate environment, such as long-duration fixed income and growth-oriented equities.
• The August jobs report is now a critical inflection point; a significant increase in unemployment toward 4.4% would validate the dovish thesis, while surprisingly strong data could trigger a sharp market repricing and challenge the new consensus, warranting close monitoring.
• Investors must now factor in the heightened potential for political influence on Fed decisions, as the potential appointment of dovish governors could lead to more fragmented and less predictable policy outcomes than in previous cycles.