Michael Feroli, chief economist at JPMorgan Securities, listens during a Bloomberg Television interview in New York on March 6, 2018.
Christopher Goodney | Bloomberg | Getty Images
The Federal Reserve should cut rates by 50 basis points at its September meeting, according to JPMorgan’s Michael Feroli.
“We think there are good reasons to return to neutral as quickly as possible,” the firm’s chief U.S. economist told CNBC’s “Squawk on the Street” on Thursday, adding that the peak of the central bank’s neutral policy would be around 4 %, or 150 basis points lower than where it currently is. “We think there are good reasons to accelerate the pace of interest rate cuts.”
According to the CME FedWatch tooltraders are pricing in a 39% chance that the Fed’s target range for the federal funds rate will be cut by half a percentage point from the current 5.25% to 5.50%, from 4.75% to 5%. A reduction of a quarter of a percentage point to a range of 5% to 5.25% shows an odds of about 61%.
“If you wait until inflation is back to 2%, you have probably waited too long,” Feroli also said. “While inflation is still slightly above target, unemployment is likely slightly above what they think is consistent with full employment. Right now you face risks to both employment and inflation, and you can always change course if it appears that any of these risks are developing.”
His comments come as August was the weakest month for private wage growth since January 2021. This follows a rise in the unemployment rate to 4.3% in July, which led to a recession indicator known as the Sahm rule.
Still, Feroli said he doesn’t believe the economy is “falling apart.”
“If the economy collapses, I think at the next FOMC meeting you would have an argument for going above 50,” the economist continued.
The Fed will make a decision on where interest rates will go from here on September 17 and 18.