JPMorgan economists stated in a report on Tuesday that the Federal Reserve should decrease interest rates more quickly given the present uncertainties surrounding a worse labour market.

Even before this ambiguity is resolved, in their opinion, "both this uncertainty and stronger supply should work to shake the Fed from its gradualist guidance."

According to JPMorgan, a lessening of the pressure on the labour market may increase confidence that inflation of service prices will decrease, so strengthening the view that the Fed's present policy stance is suitably tight.

The FOMC minutes and Chair Powell's Jackson Hole address, among other recent remarks made by Fed officials, suggest that the Fed may react by lowering rates by around 100 basis points by year's end.

JPMorgan warns that while the United States may see slower job growth and a supply-side boost that pushes up unemployment rates, other countries may not see this same pattern.

They issue a warning, noting that prior experiences have shown that, absent a coordinated change in financial market circumstances or macroeconomic fundamentals, the effect of Fed policy adjustments on other economies is often limited. Economists thus predict that the Fed's anticipated departure from gradualism won't be reflected more widely.

The report goes on to say that although the causes of what JPMorgan refers to as "new US exceptionalism" are becoming increasingly hazy, this might lead to an easing of about 100 basis points in the upcoming months, leaving the forecast for 2025 uncertain.

Economists contend that alternative policy approaches may arise depending on how this uncertainty manifests itself, including whether it is caused by a decline in demand or a continuous increase in supply.

For example, a substantial decline in labour demand might cause the economy to enter a recession and result in excessive cumulative rate cuts by the Federal Reserve of at least 300 basis points.

(Sources: investing.com, reuters.com)