The US economy is strong enough that Fed rate cuts aren't even warranted, JPMorgan strategist says

• Most traders expect the Federal Reserve to front-load easing with a big initial rate cut this week.
• However, JPMorgan strategist Oksana Aronov says a rate cut "is not necessarily even warranted."

This week, the Federal Reserve is expected to decide on the size of its highly-anticipated rate cut. Traders are pricing in a 100% chance of a cut and are merely debating how big it might be.

Yet, one strategist says a rate cut isn't necessary at all given the relative strength of the economy.

"I'd say that a cut is not necessarily even warranted, given that we're not really seeing a broad-based weakening outside of a more reasonable labor market," JPMorgan strategist Oksana Aronov said.

Aronov, who leads market strategy for alternative fixed income at JPMorgan Asset Management, pointed to historically low unemployment and retail sales data.

She said the current 4.3% unemployment rate is "certainly well within" the Fed's 5% target, and that any recent weakening is merely a return to normal after years of very tight labor market conditions.

Recent data has shown rising unemployment, including a surprise hike in July that sparked worries of a recession.

Aronov also pointed to retail sales and strong earnings from retailers like Walmart and Target, which she said show signs of a strong consumer. Data released Tuesday showed retail sales increased 0.1% in August, stronger than consensus estimates of a 0.2% decline.

"The economy is continuing to chug along. There's really no impetus to be alarmist here," she said.

Aronov added that rates aren't as restrictive as the Fed may have expected. Instead, the market had simply gotten used to being in a very low-rate environment in the years after the financial crisis and during the pandemic, eras that saw monetary policy deviate sharply from the historical norm.

"That's what 15 years of extraordinarily unorthodox monetary policy will do to a market," she said.

Most traders expect the central bank to front-load rate cuts this week with a 50 basis point cut, which could run the risk of reaccelerating inflation, Aronov warns.

She added that rate cuts likely won't solve credit and bond volatility, either, since borrowing costs still won't be low enough to ease many corporate balance sheets.

The Fed will announce its decision on interest rates at the conclusion of its policy meeting on Wednesday at 2 p.m. ET.