The Federal Reserve will raise interest rates by 75 basis points in September
- According to JPMorgan, the September FOMC meeting of the Federal Reserve will result in another significant rate hike.
- The bank expects the Fed to raise interest rates by 75 basis points in September before pivoting.
- JPMorgan said quiet and pivotal inflation data from the Fed should continue to herald developing stocks.
Investors should expect another significant rate hike from the Federal Reserve next month, according to a Monday note from JPMorgan.
JP Morgan analyst Mislav Matejka said that while inflation has shown signs of calming through lower commodity prices, the Fed will continue to raise interest rates by 75 basis points at the upcoming Federal Open Market Committee meeting in late September.
That would market a third consecutive rate hike as the Federal Reserve raised interest rates by 75 basis points, and would bring the effective Fed funds rate to more than 3% for the first time since early 2008, surpassing a high of 2.5 % seen in 2019. .
But after a potential interest rate hike in September, Mateika expects Fed Chair Jerome Powell to be more flexible on future moves, essentially pulling away from the massive rate hikes we’ve seen over the past few months.
“Now that the Fed funds rate has moved above what has traditionally been seen as a neutral level, it is likely that the Fed will become more sensitive to incoming data flows,” Matejka said.
With home prices slowing, gasoline prices significantly down from their recent peak, and prices of key agricultural products like wheat also seeing sharp drops, there is a good chance the Fed will come to the conclusion that they can slow down future price hikes and wait to see how everything stabilizes. .
“In fact, our economists believe that inflation will drop significantly,” Matejka said. JPMorgan expects annual inflation in the US to fall from its recent high above 8% to just 3% by July 2023.
“Forward inflation is showing a strong correlation to the price of Brent, and the recent pullback there is welcome for inflation trends. We expect another massive Fed hike in September, but after that, we look to the Fed not surprising markets on the hawkish side again,” said Matejka.
Altogether, this will be good news for growth stocks relative to value stocks, and should help the overall stock market continue to recover from its mid-June lows, Matjeka said. JPMorgan expects the S&P 500 to end the year at 4800, which is a potential 15% higher than current levels.