JPMorgan strategist Fabio Bassi recently analyzed the potential policy adjustments of the Fed. He believes that although Fed Chair Powell showed dovish tendencies at the Jackson Hole meeting, the rate cut in September may be limited to 25 basis points.

Brazil pointed out that this modest rate cut is mainly due to concerns about the weak job market and is a preventive measure. However, he emphasized that the current inflation level is still above the target, which limits the possibility of larger rate cuts. The latest employment data seems to have ruled out the option of keeping interest rates unchanged, but at the same time, it is not sufficient to support more aggressive rate cut actions.

Regarding the economic outlook, Brazil revealed that JPMorgan's model indicates the probability of a U.S. recession is about one-third, slightly lower than the 40% estimate after considering the impact of tariffs and immigration policies.

It is worth noting that following the departure of the Cook Council, concerns about the independence of the Fed have increased in the market. However, Brazil believes that investors should distinguish between moderate rate cuts under political pressure and institutional changes that affect central bank independence. He observed that currently, the level of concern in the market regarding the independence of the Fed is not high.

In conclusion, Brazil states that if the economic slowdown is only a temporary phenomenon, the Fed's rate cuts may remain limited. In this case, the market may reprice a relatively moderate easing path, leading to a bear flattening of the dollar yield curve, slight adjustments in risk assets, and a short-term strengthening of the dollar.