Investing.com -- The current uncertainty around a softer labor market calls for faster rate cuts by the Federal Reserve, JPMorgan economists said in a note Tuesday.
“Importantly, it reduces lingering concerns that inflation salience and elevated wage inflation could generate a feedback loop that entrenches inflation and undermines Fed credibility,” the bank’s economists explain. They caution that, based on previous instances, the impact of Fed policy changes on other economies tends to be limited unless there is a synchronized shift in macroeconomic fundamentals or financial market conditions. Therefore, economists believe the Fed’s expected shift away from gradualism will not be mirrored more broadly.
For instance, if labor demand weakens significantly and pushes the economy toward a recession, it could lead to outsized cumulative Fed rate cuts of at least 300 basis points.“Alternatively, stabilization in labor demand at a still solid pace would likely moderate Fed growth concerns and reinforce a view that the near-term neutral rate is elevated,” they added.
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