Morgan Stanley's "super dovish" prediction: The Federal Reserve may cut interest rates four times consecutively starting in September
JP Morgan predicts that the Federal Reserve will cut interest rates by 25 basis points at the September meeting and expects three more cuts of 25 basis points each thereafter. This prediction has been brought forward due to the weak U.S. labor market and the risks associated with Trump's nomination of a new board member. The newly nominated Stephen Moore may influence the Federal Reserve's policy direction, but his confirmation is still uncertain and may not be completed in time for the September policy meeting
According to the Zhitong Finance APP, JP Morgan currently expects that, given the signs of weakness in the U.S. labor market and the risks surrounding Trump's latest appointments to the Federal Reserve, the Federal Reserve will cut interest rates by 25 basis points at the September meeting, earlier than the previously predicted December. Morgan Stanley stated that current risks indicate that a rate cut may come sooner, followed by three more rate cuts of 25 basis points each, after which there will be an indefinite pause.
Personnel Changes at the Federal Reserve May Trigger Policy Expectation Adjustments
U.S. President Trump announced on Thursday the nomination of Stephen Miran, the current chairman of the White House Council of Economic Advisers and a free-market economist, to fill the vacancy on the Federal Reserve Board left by the resignation of Kugler several months ago. Kugler's original term was supposed to end in January 2026. This move marks the first opportunity for Trump to make personnel adjustments to the Federal Reserve leadership during his second term, paving the way for the implementation of his policy ideas within the monetary decision-making body.
Miran holds a Ph.D. in economics from Harvard University and is one of Trump's most relied-upon advisors on trade policy. He is the principal drafter of the so-called "Mar-a-Lago Agreement," which provided the theoretical basis and framework for the "Liberation Day Tariff" policy promoted by the Trump administration. For a long time, Miran has openly supported Trump's position urging the Federal Reserve to cut interest rates.
It remains uncertain whether Miran will be confirmed before the policy meeting on September 16-17, but JP Morgan stated that his presence could increase divisions within the rate-setting committee.
Trump also indicated that he would soon nominate another candidate to serve a full 14-year term on the Federal Reserve Board starting in January 2026, intending to position this candidate as a successor to current Federal Reserve Chairman Powell.
However, both nominations require Senate confirmation, a process expected to begin after the August recess and typically takes 4 to 8 weeks, meaning the new board member is unlikely to make it to the September FOMC policy meeting.
JP Morgan analyst Michael Feroli wrote, "For Powell, the risk management considerations at the next meeting may not only involve balancing employment and inflation risks. If Miran is already a Federal Reserve Board member by the next meeting, that could mean three dissenting votes. There could be quite a few dissenting votes."
This move comes after months of Trump pressuring the Federal Reserve to cut interest rates.
Additionally, JP Morgan's report noted that Federal Reserve Governor Waller is gradually becoming a popular candidate to succeed Powell as Federal Reserve Chairman, and the bank believes this change could be welcomed by financial markets. Analysts at Barclays also expressed a similar view, stating that Waller's appointment would reduce uncertainty regarding the Federal Reserve's response to economic data, which could benefit long-term bonds.
Key Factor Influencing the September Meeting: Labor Market
The Federal Reserve's decision in September may depend on the employment data for August. JP Morgan stated that if the unemployment rate reaches 4.4% or higher, it could provide justification for a larger rate cut, while a lower unemployment rate could provoke opposition from policymakers concerned about inflation Before this, the U.S. July non-farm payroll report underwent a large-scale revision. Federal Reserve Governor Cook stated that the July non-farm payroll report is indeed "concerning" and that its data may signify an important turning point for the U.S. economy and Federal Reserve policy.
According to the Chicago Mercantile Exchange Group's "FedWatch" tool, traders currently expect a 89.4% chance of an interest rate cut in September, up from 37.7% last week.
