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No guarantees of US interest rate cuts, says JPMorgan

The US Federal Reserve’s actions to inject liquidity and cut the discount rate were intended to alleviate the money market, but it does not necessarily mean that the Fed will cut interest rates, according to JPMorgan Asset Management.

JPMorgan predicts however that a cut will be delivered at the next FOMC meeting, but warns that we are only just beginning to see some softening in the labour market and the Fed may need to see much harder evidence of weakening to embark on a series of interest rate cuts.

In a note to investors, JPMorgan says: “A hint in (US Federal Reserve chairman) Ben Bernanke’s speech at Jackson Hole is that recent economic data may be less useful for the Fed’s forecasts and the central bank is perhaps less inclined to “data watch” and is more conscious of its forecasts of increased downside risks to growth.”

JPMorgan adds the market fundamentals have improved but the risk-reward ratio has yet to pass a turning point to favour greater risk appetite.

“We remain cautious for now, until there is convincing evidence that the money markets have returned to normality.”

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