JPMorgan Economists Expect 9 Consecutive Fed Rate Hikes

JPMorgan economists have updated their projections on Federal Reserve interest hikes, and now expect nine consecutive rate increases, to 2.25%, by March 2023.

What Happened:The bank’s economists said that the U.S. inflation reading of 7.5% in January, which outpaced December’s 7% rate, came as a surprise. “We now no longer see deceleration from last quarter’s near-record pace,” the economists wrote.

“We now look for the Fed to hike 25bp at each of the next nine meetings, with the policy rate approaching a neutral stance by early next year,” the JPMorgan team said in the research note.

The team, led by chief economist Bruce Kasman, said strong growth, cost pressures, and private sector behavior are creating a “feedback loop” which will likely cause the high rate of inflation to continue even as price pressures in the energy sector begin to fade.

“We think the risk that central banks shift and perceive a need to generate slow growth—and the corresponding impact on global financial conditions—is now the most significant threat to an otherwise healthy global backdrop,” Kasman wrote.

Why It Matters: JPMorgan economists have adjusted their global CPI forecast for the first quarter to a rate that's 5.7% higher than the same period last year. The futures market, meanwhile, has priced for a 64% probability of a 25-basis-point rate increase at the next Fed meeting in March.

The latest forecast from JPMorgan comes after Goldman Sachs economists increased their outlook to seven hikes this year, up from an earlier prediction of five. Bank of America economists are also anticipating seven increases in 2022. $Invesco QQQ Trust(QQQ.US)$ $SPDR S&P 500 ETF(SPY.US)$ $S&P 500 Index(.SPX.US)$ $Nasdaq Composite Index(.IXIC.US)$ $Dow Jones Industrial Average(.DJI.US)$