The Federal Reserve’s agenda for monetary easing sets the tone for sentiment in global financial markets. According to JPMorgan analysts, sluggish employment in the US prompts the Federal Reserve to revise its cautious stance on rate cuts. It means that the US central bank could catch investors off-guard with a surprise decision.

Experts highlight declining demand for labor force in the US. At the same time, they detected a rise in unemployment alongside an increase in labor supply and productivity. Given this uncertainty, JPMorgan suggests that the Federal Reserve may soften its ongoing aggressive monetary policy.

Earlier, Fed Chairman Jerome Powell indicated that the regulator planned to lower interest rates at the next meeting. “It’s time to adjust monetary policy. The timing and pace of rate cuts will depend on incoming data, revised economic forecasts, and risk balances,” the Fed Chairman cleared up.

Such confidence is unusual for Powell whose statements are commonly more cautious. Previously, the Chairman underscored that policymakers need additional data on inflation and unemployment before deciding on a rate cut.

In his annual keynote speech at Jackson Hole, Jerome Powell confirmed that his colleagues revised the risk evaluation as the regulator was unwilling to tolerate further deterioration in labor market conditions, JPMorgan reminded investors. Analysts say that the Federal Reserve has softened its previous hawkish stance and now the regulator will likely need to cut the funds rate by about 100 basis points by the end of 2024.

Importantly, there are only three policy meetings scheduled until the year end. Therefore, the regulator might move away from small 25 basis-point rate cuts to implement sharper 50 basis-point rate cuts. This forecast by JPMorgan closely aligns with market expectations. Current estimates suggest a significant chance of a rate cut ranging from 75 to 125 basis points by the end of 2024. The Federal Reserve’s agenda for next year will depend on the US labor market situation.

JPMorgan experts warn that there is a high risk that soft labor demand could push the US economy into recession. This might trigger an overall reduction in the Fed’s key interest rate by at least 300 basis points. Besides, other countries might also embark on the path of monetary easing, JPMorgan concludes.