Wall Street Bets on Only a Small Cut Despite Weak Jobs Data
Markets betting on a steep Federal Reserve rate cut may need to dial back expectations, according to JPMorgan strategist Fabio Bassi.
He argues that while economic data has turned weaker, persistent inflation makes a 50-basis-point move in September unlikely. Instead, the bank expects the Fed to opt for a standard 25bps cut.
Bassi places the risk of a U.S. recession at 40%, but believes policymakers will tread carefully, especially given recent political turbulence following the dismissal of Fed Governor Lisa Cook. He stressed that the Fed’s independence remains intact despite the backdrop, and that any easing will likely be limited unless the slowdown deepens.
Market Pricing Points to Caution
Investor positioning strongly favors a modest cut. Futures markets currently price in an 88% probability that the Fed trims by just a quarter point at its September 17 meeting.
The conviction has grown since the release of August’s soft labor data, which showed only 22,000 jobs added alongside a rise in unemployment to 4.3%.
Other Analysts Weigh In
Citi chief economist Andrew Hollenhorst echoed the view, noting that while the weak jobs report justifies easing, it does not support a half-point reduction. Nomura’s David Seif described any move as an “insurance cut” designed to buffer labor market softness without signaling panic.
Apollo’s Torsten Slok went further, predicting that the Fed will continue cutting in the months ahead even if inflation stays above target.
If the slowdown proves temporary, Bassi expects risk assets to retreat modestly while the U.S. dollar remains firm. The central bank, he suggests, is unlikely to move aggressively until inflation shows clearer signs of returning to its 2% goal.
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