Current uncertainty over a slowing labor market calls for faster rate cuts by the Federal Reserve, JPMorgan economists said in a note on Tuesday.
They believe that this uncertainty, along with increased supply, "should prompt the Fed to abandon gradual guidance, before this uncertainty is resolved."
JPMorgan argued that easing pressures on the labor market could boost confidence that service price inflation will decline, reinforcing the belief that the Fed's current policy stance is tight enough.
Recent comments by Fed officials, including FOMC minutes and Chairman Powell's speech in Jackson Hole, indicate that the Fed may respond by cutting rates by about 100 basis points by the end of the year.
However, JPMorgan noted that while the US may be experiencing slower job growth and an increase in the supply side that is driving up the unemployment rate, this trend is not as pronounced in other economies.
They warn that, based on past events, the impact of Fed policy changes on the rest of the economy is likely to be limited unless there is a coordinated change in macroeconomic fundamentals or financial market conditions. Therefore, economists believe that the shift expected by the Fed will not be reflected more widely.
While growing uncertainty over what JPMorgan describes as "new US exceptionalism" may lead to a reduction of about 100 basis points in the coming months, it leaves the outlook for 2025 uncertain in the note.
Along with the expected increase in growth from the initial easing, which was intended to offset risks that did not materialize, policy adjustments may slow and may stall as rates approach 4%.
