The upcoming non-farm payroll report is crucial! Morgan Stanley: Will determine whether there will be another 50 basis points rate cut in November

JPMorgan Chase is one of the Wall Street investment banks that correctly anticipated the 50 basis point rate cut by the Federal Reserve this week. The company stated that another significant rate cut will depend on the weakening of the US labor market.

JPMorgan Chase's Chief US Economist Michael Feroli continues to believe that the Federal Reserve will cut rates by another 50 basis points in November, but he noted that the effectiveness of his view will depend on the results of the upcoming employment report. Since August 2, he has been calling for a 50 basis point rate cut by the Federal Reserve at this week's FOMC meeting, even after one of his colleagues abandoned a similar bet.

JPMorgan Chase's interest rate strategists are also cautious, expecting US Treasury yields to remain range-bound until the September employment report provides direction. The bank has dropped its recommendation to bet on the widening of the yield spread between three-year and 30-year bonds, but believes there is an opportunity to restart steepening trades on the yield curve before the next employment report is released.

JPMorgan Chase has closed out its profitable trades on the steepening of the US Treasury yield curve.

"We still expect the pace of normalization to be faster than the median forecast of the dot plot," Feroli wrote in a report to clients after the Federal Reserve announced its rate decision. "We expect the Federal Reserve to cut rates by 50 basis points at the next meeting in early November, depending on further softening in the two employment reports between now and then. Conversely, more moderate employment data will set the stage for a scenario where the FOMC cuts rates by 25 basis points at each meeting for the remainder of the year."

Economists at Citigroup had previously abandoned their prediction of a 50 basis point rate cut by the Federal Reserve at this week's meeting, and the bond market's view is evenly split. However, Feroli has consistently stated that the Federal Reserve is behind the curve in starting rate cuts and will take massive actions.

While JPMorgan Chase has been successful, other Wall Street investment banks have begun to revise their forecasts.

Economists at Goldman Sachs, led by Jan Hatzius, now expect the time for the Federal Reserve to cut rates by 25 basis points consecutively from November to June 2025 to be longer. However, they also wrote that choosing between a 25 basis point or 50 basis point rate cut in November is "a tough call," and added that the decisive factor will be the next two employment reports.

US Treasury yields edged lower on Thursday, with short-term bonds leading the decline. Traders are betting that the Federal Reserve will cut rates by an additional 70 basis points this year.

Strategists at JPMorgan Chase, led by Jay Barry, wrote, "In the coming weeks, US Treasury bonds may become more range-bound. It is unlikely that the money market will price in a faster pace of rate cuts or lower terminal rates until we see the September employment report."