JPMorgan (NYSE:JPM) Sticks to 50-Basis Point Rate Cut Forecast

JPMorgan Chase (JPM), the largest U.S. bank, has reiterated its forecast for a 50-basis point interest rate cut from the Federal Reserve at its meeting on Sept. 18.

JPMorgan’s forecast is aggressive and runs counter to the consensus view on Wall Street. Futures traders are currently betting 65% that the U.S. central bank will lower interest rates by 25 basis points at its next policy meeting. However, The Wall Street Journal newspaper is reporting that policymakers at the Federal Reserve remain undecided on the size of the upcoming interest rate cut, meaning that a larger 50-basis point cut may not be off the table.

JPMorgan Doubles Down

In a note to clients, JPMorgan Chief Economist Michael Feroli wrote: “We’re sticking with our call that they (the Fed) will do the ‘right’ thing and cut 50bp.” Feroli had doubled down on his 50-basis point call over the past week after an August nonfarm payroll labor report was made public.

The lead economist at JPMorgan said he expects interest rates to decline a total of one full percentage point by year’s end. This would involve a 50-basis point cut on Sept. 18, followed by two 25-basis point cuts at the Fed’s two remaining meetings this year on Nov. 7 and Dec. 18.

A Complicated Picture

The Federal Reserve’s upcoming moves on interest rates has become complicated in recent weeks as evidence mounts that the U.S. economy is slowing. Federal Reserve Chair Jerome Powell has acknowledged the need for lower interest rates, saying after the central bank’s last meeting that “A reduction in our policy rate could be on the table as soon as the next meeting in September.”

However, data showing a slowdown in the U.S. labor market has led to a debate about how aggressive the Fed should be in terms of lowering interest rates, and whether the central bank should start out by cutting 25 or 50-basis points. The most recent labor report showed that nonfarm payrolls added 142,000 net new jobs in August, which was less than the 161,000 consensus expectation of economists.

The U.S. Bureau of Labor Statistics reported on Sept. 11 that inflation in America declined to an annualized rate of 2.5% in August, its lowest level since February 2021. Inflation in the U.S. is down from a peak of 9.1% reached in June 2022, which was a 40-year high. Fed Chair Powell has repeatedly said that the central bank is trying to achieve a “soft landing,” which is when inflation is brought lower using high interest rates without causing a recession.

Is JPM Stock a Buy or Sell?

The stock of JPMorgan Chase currently has a Strong Buy consensus rating based on the views of 20 Wall Street analysts who cover the bank. This is based on 16 Buy and 4 Hold ratings on the stock. There are currently no Sell ratings on the bank’s shares. In addition, the average price target on JPM stock of $224.13 indicates almost 10% potential upside from current levels.

Read more analyst ratings of JPMorgan’s stock

Conclusion

We’ll know in a few days exactly how aggressive the Fed is in cutting interest rates. Right now, the market is anticipating a more dovish 25-basis point rate cut. But, as the Journal is reporting, central bank officials have still not made up their minds and JPMorgan could end up looking prescient with its forecast of a 50-basis point cut. Much will likely depend on the debate that takes place behind closed doors at the Federal Reserve’s upcoming meeting.