‘Dust off your rate-cutting playbook,’ JPMorgan tells clients—the evidence for a Fed cut just keeps piling up

The Labor Department revealed Thursday that initial claims rose by 27,000 to 263,000 in the week ended Sept. 6—their highest level since October 2021.

Many saw the data (compounded by significant revisions to recent jobs reporting from the Bureau of Labor Statistics, which painted a far weaker employment picture than previously believed) as further pressure on the Federal Open Market Committee (FOMC) to cut the base rate.

That’s because part of the Fed’s mandate is to ensure stable and maximum employment, an aspect of its work that in recent months has been overshadowed by the fear of inflation—mainly owing to President Trump’s tariff plans.

On this account, Fed Chair Jerome Powell has agreed with many analysts that he will have to “see through” tariff increases as a one-off blip to price stability as opposed to an ongoing trend which will need to be managed.

This meant yesterday’s consumer price index (CPI) didn’t come with the same level of gravity as it may have done otherwise. The BLS reported CPI for urban consumers increased 0.4% on a seasonally adjusted basis, up 0.2% from July.

The largest contributor to the increase was shelter, which rose 0.4%, while the food index increased 0.5%, with groceries increasing 0.6% for the month.

But markets shook off the warmer data: The S&P 500 is up 0.85% at the time of writing, the Dow Jones is up 1.36%, and the Russell 2000 is up 1.83%. Despite political volatility in France, Paris’s CAC was only down a marginal 0.45%, while London’s FTSE 100 is up around 0.35%.

In Asia Japan’s Nikkei 225 was up approximately 0.9%, while India’s Nifty 50 increased by 0.46%.

Markets are “buoyant,” wrote Deutsche Bank’s Jim Reid to clients this morning: “The combined data prompted a rally in U.S. Treasuries, with 10yr yields falling –6bps lower after the print before closing –2.5bp on the day to 4.02% … However, the front-end rally ran out of steam as the day went on and 2yr yields closed a mere –0.1bps lower as markets remained hesitant to price in much risk of a 50bps cut, with September Fed pricing unchanged at 27bps.”

Action for investors

With CME’s FedWatch barometer still pricing in a 0.0% chance of a rate hold at the FOMC’s meeting this month, J.P. Morgan Wealth Management’s Elyse Ausenbaugh, head of investment strategy, said the team had been “encouraging investors to dust off their ‘rate-cutting playbook.’”

Ausenbaugh wrote in a note seen by Fortune: “The path for the Fed to deliver what the market is expecting looks clear from our perspective. With inflation printing in-line with expectations and the labor market not giving us signs of improvement, a cut is in order.”

She added: “We expect these cuts to happen without a recession. There’s potential in the evolving environment for continued equity outperformance in the U.S. and abroad. It’s also important for investors to consider the reinvestment risk associated with holding cash and ultra-short-term fixed income positions.”

Over at UBS Global Wealth Management, chief investment officer Mark Haefele is similarly reminding clients of their to-do list during a base rate cut. He wrote this morning: “With cash returns set to fall further as the Fed resumes rate cuts, we see a growing need to deploy excess cash into higher-yielding assets.

“Phasing into diversified portfolios over time could also help manage the risk of poor timing, reduce the influence of emotion, and provide more opportunities to benefit from market dips and rebounds.”

Here’s a snapshot of the markets globally this morning:

• S&P 500 futures were down 0.22% this morning. 
• STOXX Europe 600 was down 0.18% in early trading. 
• The U.K.’s FTSE 100 was up 0.35% in early trading.
• Japan’s Nikkei 225 was up 0.89%.
• China’s CSI 300 was down 0.57%. 
• South Korea’s KOSPI was up 1.54%.
• India’s Nifty 50 was up 0.46%.
• Bitcoin has nudged above $115K.