Fed chair Jerome Powell is due to speak on Thursday
The Fed may cut rates as soon as year-end as a recession hits the US economy, according to J.P. Morgan Asset Management’s CIO.
“The magnitude of the slowdown we’re seeing across the board tells us that we’ll probably still be hitting recession around year-end, so they’ll be cutting rates by then,” Bob Michele said.
Such a move would be similar to how the Fed dropped its “transitory” call on inflation and started raising rates, he said.
A US recession is round the corner and it may force the Federal Reserve to slash interest rates as soon as year-end, according to the chief investment manager of J.P. Morgan Asset Management.
In an interview with Bloomberg Television, Bob Michele said the US central bank will likely quickly pivot – possibly before the year is out – from its current messaging that rates will stay high for longer, to reverse policy and start cutting borrowing costs.
Such an outcome would be similar to how the institution shifted its stance during 2021-2022, when it abruptly abandoned its narrative that inflation was “transitory” and started raising rates, he added.
“This is the Fed that promised us “transitory” and then within a couple of months, changed their mind and started hiking rates. We think we’re going to see the same thing this time,” Michele told the outlet. “They’re going to tell us that they’re going to keep rates higher for longer until inflation is at their target.
“But the magnitude of the slowdown we’re seeing across the board tells us that we’ll probably still be hitting recession around year-end, so they’ll be cutting rates by then,” he added.
A majority of economists expect the Fed to leave benchmark borrowing costs unchanged in the current 5%-5.25% range at its policy meeting next week, according to a Reuters survey. The monetary authority has already hiked rates by more than 500 basis points over the past six quarters in a bid to tame inflation.
It has succeeded in lowering the annual pace of consumer-price increases to around 3% from 40-year highs above 9% reached last year.
“I think this time for them to cut rates, they’re going to have to see unemployment go up. So it’s possible that they may actually tip the economy into recession first before they start cutting rates, which would be something new for them. It would be positively ECB-like,” J.P. Morgan Asset’s Michele told Bloomberg.