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J.P. Morgan turns more hawkish after Fed chair Kevin Warsh’s remarks
The bank now expects a 25 basis point rate increase in December, while the Fed’s 9-3 hold on July 29 did not stop Treasury yields from rising, with the 30-year topping 5.22%.
J.P. Morgan adjusted its outlook for the Federal Reserve’s interest-rate path after chair Kevin Warsh left investors uncertain about how the Fed would use its preferred inflation gauge going forward, according to Yahoo Finance. The Fed’s latest preferred inflation indicator reading for June came in below consensus, helped by lower energy prices, but Warsh’s comments on whether the Personal Consumption Expenditure price index would keep serving as the benchmark strategy for inflation policy drew criticism on Wall Street.
Yahoo Finance reports that markets reacted quickly to Warsh’s post-meeting press conference, with bonds selling off and the 30-year Treasury yield reaching 5.22%. Within hours, J.P. Morgan moved its forecast to a more hawkish stance, with Chief U.S. Economist Michael Feroli saying the Fed is expected to raise rates by 25 basis points in December rather than in the second half of 2027.
In the note to clients cited by Yahoo Finance, J.P. Morgan said it expects the Federal Funds Rate to remain at 3.75% to 4.00% after the December hike. The firm also flagged that a September rate increase remains a real risk.
Yahoo Finance adds that the Fed’s July 29 decision to hold short-term benchmark rates steady passed by a 9-3 vote, but the broader communication around the inflation plan added to policy uncertainty. Warsh, who has repeatedly pledged to return inflation to the Fed’s 2% target, acknowledged there is “no magic wand” when pressed on how the goal would be achieved.