This month, JPMorgan's top economist recommends that the Fed reduce interest rates by half a point.

• This month, Michael Feroli, JPMorgan's top economist, suggests that the Federal Reserve should reduce interest rates by half a point.
• The CME FedWatch tool indicates that traders are pricing in a 39% chance that the Fed will lower the federal funds rate by half a percentage point.
• In more than three-and-a-half years, the weakest private payrolls growth was observed by Feroli during August.

JPMorgan's Michael Feroli recommends that the Federal Reserve reduce interest rates by 50 basis points during its September meeting.

"The firm's chief U.S. economist believes that the central bank should return to a neutral stance as soon as possible, with the optimal rate being around 4%, which is 150 basis points below the current setting. The economist also suggests that the central bank should speed up its rate cuts."

The CME FedWatch tool indicates that traders are pricing in a 39% chance that the Fed will lower its target range for the federal funds rate by half a percentage point to 4.75% to 5% from the current range of 5.25% to 5.50%. A quarter percentage point reduction to a range of 5% to 5.25% shows odds of about 61%.

"If you wait until inflation is already back to 2%, you've probably waited too long," Feroli stated. "While inflation is still a little above target, unemployment is probably getting a little above what they think is consistent with full employment. Currently, you have risks to both employment and inflation, and you can always reverse course if it turns out that one of those risks is developing."

Since January 2021, August has been the weakest month for private payrolls growth, following the unemployment rate's increase to 4.3% in July, which triggered the Sahm Rule recession indicator.

Feroli stated that he does not believe the economy is "unraveling."

If the economy were collapsing, I believe you'd have a compelling case for raising interest rates above 50 at the next FOMC meeting, the economist stated.

The Federal Reserve will determine the direction of interest rates on September 17 and 18.