US Stock Market: JP Morgan brings forward Fed rate hike call to December after July policy meeting
The brokerage had previously expected the Fed to raise rates in the second half of 2027. It now anticipates a 25-basis-point increase in December, after which the benchmark federal funds rate is expected to stand in the 3.75%-4.00% range.
The revised outlook comes after Federal Reserve Chair Kevin Warsh reiterated the central bank’s commitment to restoring inflation to its 2% target but stopped short of indicating what policy actions may be required to curb persistent price pressures. Reuters reported that JP Morgan believes the comments could raise questions about the Fed’s credibility on inflation and increase pressure on other policymakers to act more decisively.
The Fed’s decision to keep rates unchanged was widely expected. However, the outcome revealed divisions within the Federal Open Market Committee (FOMC), with three of the panel’s 12 members favouring a quarter-percentage-point rate increase.
Although underlying inflation has strengthened in recent months, supported by higher fuel and food prices as well as robust investment linked to artificial intelligence, Warsh did not signal that an immediate rate hike was the preferred policy response.
JP Morgan also noted that the possibility of a September rate increase remains if inflation continues to accelerate, even as its base case points to action in December.
Market expectations shifted following the Fed’s policy announcement. According to Reuters, citing CME Group’s FedWatch tool, traders are now assigning a 65.2% probability to a September rate hike, down from 81% before the Fed released its statement.Brokerages remain divided over the Fed’s next move. Goldman Sachs and Barclays continue to expect policymakers to leave interest rates unchanged for the rest of the year, while BofA Global Research forecasts a series of three rate hikes beginning in September.
Citigroup, which has generally maintained a more dovish outlook on monetary policy, reaffirmed its expectation of rate cuts in October and December this year, followed by another reduction in January 2027.
