J.P. Morgan now expects the U.S. Federal Reserve to reduce interest rates by 25 basis points at its September meeting, citing signs of labor market weakness and political developments in Washington.
The bank had previously forecast its first rate cut in December but said Thursday that risks now favor an earlier move.
Political Influence Over Monetary Policy
The shift in expectations follows President Donald Trump’s nomination of Stephen Miran, current chair of the Council of Economic Advisers, to temporarily join the Fed’s governing board.
Miran would 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 up to three dissenting votes.
BofA Global Research expects at least one dissent in September if cuts are not delivered, noting Miran’s critical view of the Fed.
Economic Data to Play Key Role
The Fed’s September decision could 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.