With scant Fed clues, JPMorgan makes a rate call
JPM•JPMorgan pulls forward its Fed hike forecast
After Wednesday's latest update from a divided Federal Reserve, strategists, economists and investors were left with lots of questions and many expressing frustration.
JPMorgan's Michael Feroli also pointed to gaping absences of information, but he was less shy than the central bank about taking action. Interestingly, the bank's chief U.S. economist reacted to the meeting by pulling forward his expectation for a Fed rate hike to December 2026 from the second half of 2027.
As everybody knows by now, the Federal Open Market Committee left rates unchanged on Wednesday though three members of the committee voted against the crowd in favor of a rate hike. And, as he had previously promised, Fed Chair Kevin Warsh gave no clear signal as to what will come next.
But Feroli highlighted two issues that led to his changed expectation for hikes.
First, he noted that Warsh, in his press conference, "failed to specify how he intended to achieve his stridently asserted inflation resolve." Then he pointed to the fact that Warsh cast doubts on whether PCE inflation will remain as the Fed’s main inflation target in the medium term.
"Both of these points raise questions about the new chair’s credibility in delivering lower inflation. We believe this will add some urgency for the rest of the committee to act on its mandate," Feroli wrote.
The economist said that a September hike is also "clearly a risk if inflation heats up again soon."
He noted the statement's promise to deliver price stability. And he recalled how Warsh talked about the Fed's responsibility to keep inflation under control during his press conference. But Feroli noted that, "when repeatedly asked how this related to policy, Warsh did not seem to have a direct answer."
In summary, the economist wrote that "it's hard to know what to make of Warsh’s remarks, which involved a lot of well-turned phrases but little in the way of a coherent macro view."
So he was left to speculate on how other committee members might react to Warsh's comments.
