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at present, the market has generally expected that the federal reserve will start to cut interest rates in september. the only difference is the extent of the rate cut. after a number of data this week suggested a weak us labor market, more and more voices on wall street are now supporting a 50 basis point rate cut. even the chief economist of jpmorgan chase directly called on the federal reserve to cut interest rates by 50 basis points.

george lagarias, chief economist at forvis mazars, expressed a different view. he firmly supports a 25 basis point rate cut, because if the rate cut is too large, it may send the wrong message that the risk of economic recession is imminent, which may cause market panic.

the fed doesn't need to worry too much?

data on wednesday showed u.s. job openings fell to their lowest level in 3-1/2 years in july, which was seen as a sign of labor market weakness.

this thursday, the u.s. adp employment report further escalated wall street's concerns: data showed that private sector employment increased by 99,000 in august, which was not only lower than the market expectation of 145,000, but also the lowest since january 2021.

given this data performance, michael feroli, chief u.s. economist at jpmorgan chase, even directly called for the federal reserve to cut interest rates by 50 basis points at its september meeting.

according to the federal reserve's monitoring tool fedwatch, the market expects the probability of the federal reserve cutting interest rates by 50 basis points in september to be 41%, while the probability of cutting interest rates by 25 basis points is 59%.

but in the view of forvis mazars' lagarias, such weak employment data is not enough to worry the fed too much.

“the economy is slowing, there’s no doubt about that, but i don’t think we’re anywhere near a recession. i know there’s been some decline in the job market, and some of that is due to increased supply rather than decreased demand.”

lagarias also believes that the current weakening of the labor market itself has been expected: "yes, job openings have decreased and manufacturing has weakened, but we expected this slowdown, and everyone expected this slowdown. there is no evidence of a recession, and at this point, i don't think the fed will take very aggressive actions."

is a sharp interest rate cut dangerous?

lagarias also mentioned that if the federal reserve rashly cuts interest rates significantly, it may cause market panic.

"i don't think there's any urgency to cut rates by 50 basis points," lagarias said. "a 50 basis point cut would probably send the wrong message to the market and the economy. it would probably send a message of urgency, and you know, it could become a self-fulfilling prophecy. so,if they choose to cut rates by 50 basis points without a particular reason, that would be very dangerous.. unless something happens to unsettle the market, there is no reason to panic.”

lagarías isn’t the only one warning the fed against a 50 basis point rate cut this month.

mohit kumar, chief financial economist for europe at jefferies, also believed last month that there was "absolutely no need" for the fed to cut interest rates by 50 basis points at its september meeting.