JPMorgan Econ FI-US Fixed Income Overview Stuck here in the middle with you-110319151

Investment Rating - The report maintains a bullish outlook on the fixed income market, particularly favoring a 50 basis point rate cut by the Federal Reserve in the upcoming FOMC meeting [1][2][4]. Core Insights - The core Consumer Price Index (CPI) rose by 0.28% in August, driven by an increase in Owners' Equivalent Rent (OER), which supports the expectation of a rate cut [1][2]. - The Federal Reserve is anticipated to guide markets towards further easing, with expectations of 100 basis points of cuts by the end of 2024 and an additional 150 basis points in 2025 [1][9]. - The report highlights a preference for steepening trades in the Treasury curve, particularly 3s/30s steepeners, as a core bullish view [1][10]. Economic Overview - The labor market is showing signs of slowing, with private payrolls dropping below 100,000, prompting a shift in the Fed's reaction function [4][9]. - GDP growth is projected to remain stable at 1.8%, with core PCE inflation expected to taper to 2.0% by 2026 [9][10]. Treasury and Interest Rate Derivatives - The report discusses the potential for a 25 or 50 basis point rate cut, with a preference for positioning in both higher and lower yield scenarios [1][10]. - Asymmetric positioning strategies are recommended, including conditional flatteners and steepeners based on the anticipated rate cut size [10][12]. Securitized Products - Mortgage spreads are tight, with performance driven by the onset of the easing cycle and declining volatility [1][17]. - Regulatory changes regarding Basel III are expected to impact mortgage loan risk weights, potentially reducing securitization activity [19][21]. Corporate Credit - High-grade (HG) credit spreads are expected to remain stable as fundamentals improve alongside falling rates, with a positive outlook for returns [1][26]. - High yield (HY) spreads have increased slightly, but historical performance suggests strong returns in the months following a rate cut [26][28]. Near-term Catalysts - Key upcoming economic indicators include August retail sales, the September FOMC meeting, and employment data [1][10].