(Bloomberg) -- JPMorgan Chase & Co., the one Wall Street titan whose economists correctly called the Federal Reserve’s half-point interest-rate cut on Wednesday, says another big reduction hinges on the US labor market getting weaker.
Michael Feroli, the bank’s chief US economist, is sticking to his call for another 50-basis-point reduction in November, but said his view is contingent on the findings of upcoming jobs reports. He had been calling for a half-point move at Wednesday’s FOMC meeting since Aug. 2, and held to it even after one of his peers capitulated on similar bets.
The caution was shared by JPMorgan’s rates strategists, which anticipate Treasuries will remain range-bound until the September employment report provides direction. The bank closed its recommendation to bet on the gap between three- and 30-year yields widening, but sees an opportunity to re-initiate the steepening trade closer to the next jobs report.
“We are still expecting a faster pace of rate normalization than the median dot,” Feroli wrote in a note to clients after the Fed decision. “Our expectation for a 50bps cut at the next meeting in early November is contingent on further softening in the two jobs reports between now and then. More benign labor data would, instead, seal the case for the FOMC’s goldilocks scenario of 25bps eases per meeting over the remainder of the year.”
Economists at Citigroup Inc. gave up on their call for a half-point cut going into this week’s meeting, and the bond market was evenly split. But Feroli kept on saying the Fed was behind the curve in beginning to lower rates and would deliver an outsized move.
While JPMorgan takes its victory lap, other Wall Street banks have started overhauling their forecasts. Goldman Sachs Group Inc. economists led by Jan Hatzius now expect a longer string of consecutive quarter-point cuts from November through to June 2025. However, the choice between a quarter- and half-point cut in November is “a close call,” they wrote, adding that the deciding factor will be the next two employment reports.
Treasury yields inched lower on Thursday led by the short end, with two-year yields dropping four basis points to 3.58%, while 10-year yields dropped one basis point to 3.69%. Traders wagered on an additional 70 basis points of easing from the US central bank this year.
“The Treasury curve is likely to become more range-bound in the coming weeks,” wrote strategists led by Jay Barry. “Money markets are unlikely to price a faster pace of cuts or a lower terminal rate until we see the September employment report.”
©2024 Bloomberg L.P.