J.P. Morgan expects the Federal Reserve to deliver one more rate hike in December, but not a prolonged tightening cycle. Chief U.S. economist Michael Feroli says the forecast rests on supply shocks driving inflation.
The Federal Open Market Committee (FOMC) raised its target range to 3.75% to 4% on September 16. The 12-0 vote marked the Fed’s first hike since 2023.
Why J.P. Morgan Backs One More Fed Rate Hike
Core Personal Consumption Expenditures (PCE) inflation has topped 3% every month this year, according to the J.P. Morgan report. The Fed’s preferred gauge excludes food and energy. However, a fresh reading showed that prices cooled more than expected, rising to 3.4% rather than the expected 3.7%.
Feroli says the September hike also protected the Fed’s credibility, since Chair Kevin Warsh had repeatedly warned against tolerating inflation.
J.P. Morgan’s December call matches the median on the dot plot, a chart of each official’s rate projection.
“Inflation continues to look supply-shock-driven, and as such we don’t foresee a protracted hiking cycle extending into next year.” Feroli said.
Meanwhile, he sees a credible case for skipping October, because September’s hike needs time to filter through the economy. Still, traders have already cut their October hike odds after New York Fed President John Williams signaled no urgency.
Warsh’s Task Forces Could Change How the Fed Talks
Warsh also ordered five task forces to review the Fed’s policymaking, with findings due by year-end. J.P. Morgan sees no change to its rate forecast, but three reviews stand out.
- Communications may scrap the dot plot. Feroli calls that uncertain, and says dropping it without a replacement would cut transparency.
- Balance sheet could push for a smaller Fed portfolio, which Warsh favors. Jay Barry, J.P. Morgan’s head of global rates strategy, says that needs major changes to bank rules and payments.
- Productivity and jobs will study AI, which Warsh calls disinflationary. J.P. Morgan sees no near-term policy effect.
However, any major shift needs backing from the full FOMC, so change could arrive slowly.
The Fed meets again on October 28 and December 9. Crypto fund inflows hit $3.55 billion last week, the most in 2026, according to CoinShares. A second hike will test whether that demand holds.