- The Fed’s FOMC meeting in September will trigger another outrageous rate hike, according to JPMorgan.
- The bank expects the Fed to raise interest rates by 75 basis points in September before tipping.
- Cooling inflation data and a linchpin from the Fed should continue to bode well for growth stocks, JPMorgan said.
Investors should expect another excessive rate hike from the Federal Reserve next month, according to a Monday note from JPMorgan.
JPMorgan analyst Mislav Matejka said that while inflation is showing signs of cooling through falling commodity prices, the Fed will still raise interest rates by 75 basis points at its upcoming FOMC meeting in late September.
That would mark the third consecutive rate hike that saw the Fed hike rates by 75 basis points, and it would push the effective Fed funds rate above 3% for the first time since early 2008, marking the 2.5% high. will be eclipsed in 2019. .
But after September’s likely rate hike, Matejka expects Fed Chair Jerome Powell to be more flexible in future moves, essentially turning it away from the excessive rate hikes of recent months.
“As the Fed funds rate has risen above what is traditionally seen as a neutral level, there is a good chance that the Fed will become more sensitive to the incoming data flow,” Matejka said.
And with house prices cooling, gasoline prices well below their recent peak, and key agricultural prices like wheat also falling sharply, the Fed is likely to conclude that they can slow their future rate hikes and wait to see how everything is arranged.
“Our economists do indeed believe that inflation will fall significantly,” Matejka said. JPMorgan forecasts that U.S. annualized CPI inflation will decline from its recent peak of over 8% to just 3% in July 2023.
“Forward inflation shows a strong correlation with the Brent price, and the recent weakening there is welcome for inflation trends. We expect another outrageous Fed hike in September, but let us know that we would expect the Fed not to let the markets would surprise again on the aggressive side,” said Matejka.
Overall, that would be good news for growth stocks versus value stocks, and should help the overall stock market continue to recover from its mid-June low, Matejka said. JPMorgan expects the S&P 500 to end the year at 4,800, representing a potential gain of 15% from current levels.