United States-110319185

1Michael Feroli (1-212) 834-5523michael.e.feroli@jpmorgan.comJPMorgan Chase Bank NAMichael S Hanson (1-212) 622-8603michael.s.hanson@jpmchase.comJPMorgan Chase Bank NAMurat Tasci (1-212) 622-0288murat.tasci@jpmchase.comJ.P. Morgan Securities LLCAbiel Reinhart (1-212) 270 4058abiel.reinhart@jpmchase.comJPMorgan Chase Bank NANorth America Economic Research13 September 2024J P M O R G A Ncy rate still above 4% at the end of next year and above 3% at the end of 2026. Assuming the Fed does indeed announce a 50bp reduction in the funds rate target, we expect the median 2024 dot to show a total of 100bp of cuts this year, and for 150bp of easing in 2025 (Figure 1). We also expect Powell to argue this action should help preserve a soft landing (even if he has avoided using that exact phrase).Table 1: Median June SEP Projections and our Forecast for September202420252026Longer RunSep SEP forecast2.12.02.01.8June SEP actual2.12.02.01.8Unemployment RateSep SEP forecast4.24.34.1-4.24.1-4.2June SEP actual4.04.24.14.2Core PCESep SEP forecast2.72.32.0June SEP actual2.82.32.0Fed funds rate targetSep SEP forecast4.42.92.82.8June SEP actual5.14.13.12.8Source: Federal Reserve, J.P. MorganChange in real GDPConversely, should the Committee take the timid approach and end up cutting only 25bp next week, we would look for the median 2024 dot to show just 75bp of cuts this year. In that case, we would expect Powell to stress a readiness to promptly pick up the pace on any signs of further labor mar-ket softening. Indeed, he is likely to have to parry a phalanx of dovish questions from reporters. In either case, we look for relatively modest changes to the economic projections.We look for the statement to say the Committee has gained further confidence on inflation moving sustainably toward 2%, after citing “further progress” (dropping the preceding “some” from prior iterations). Waller’s recent remarks could provide a template for updated guidance: “With inflation and employment nearer our longer-run goals and the labor market moderating, it is likely that a series of reductions will be appropriate.” Any such guidance would, of course, be couched within data dependent language. We don’t expect any change in balance sheet policy, although the rate reduc-tion could be characterized as normalizing policy akin to the continuation of QT. The minutes for next week’s meeting could indicate that the end of balance sheet reduction is on the horizon.Ebbing inflation worriesThis week’s comprehensive set of inflation measures collec-tively suggested a soft reading for core PCE inflation in August, and continue to point to dissipating inflation worries despite slightly firmer than expected CPI and PPI reports. Earlier in the week, the August CPI inflation report showed a core CPI increase of 0.28%m/m, the largest gain since April, which kept the year-ago rate stable at 3.2%. The headline CPI rose 0.2%m/m, marking the smallest annual increase since •At the September FOMC meeting, we