July 30 (Reuters) – J.P.Morgan now expects the Federal Reserve to deliver a quarter-point rate hike in December, bringing forward its previous forecast for an increase in the second half of 2027, after the central bank left policy rates unchanged at its July meeting.
Fed Chair Kevin Warsh reaffirmed the central bank’s commitment to bringing inflation down, but offered few clues about the policy steps needed to reduce price pressures that have remained above the Fed’s 2% target for more than five years.
Warsh’s remarks cast doubt on the new chair’s credibility in delivering lower inflation, J.P.Morgan said in a note on Wednesday, adding that this could increase the urgency for the rest of the committee to act on its mandate.
The widely anticipated decision to keep policy rates unchanged drew dissent from three of the FOMC’s 12 members, who favored a quarter-percentage-point rate increase.
Although underlying inflation had been picking up through last month, driven by higher fuel and food prices and strong AI-related business spending, Warsh did not offer a rate hike as necessarily the right answer.
J.P.Morgan expects the Fed to hold rates at 3.75%-4.00% after delivering a hike in December, adding that the risk of a September rate increase remains on the cards if inflation continues to heat up.
Markets are pricing in a 65.2% chance of a rate hike in September, down from 81% before the policy statement, according to the CME Group’s FedWatch tool.
Other brokerages, including Goldman Sachs and Barclays, continue to expect the central bank to keep rates unchanged through the end of the year, while BofA Global Research forecasts three rate hikes starting in September.
Meanwhile, Citigroup, a long-standing Fed dove, maintained its forecast for rate cuts in October and December this year and one in January 2027, following the July meeting.
(Reporting by Joel Jose in Bengaluru; Editing by Sonia Cheema)
