Fed officials are heading to the central bank's annual meeting in Jackson Hole, Wyoming, this week, the central bank's most important economic policy meeting of the year. Officials appear to have "drawn a bottom line" on inflation, as there is reason to believe that 40-year high inflation will continue to cool and the risk of a U.S. recession is rising, a JPMorgan strategist said in a note on Monday.
David Kelly, chief global strategist at JPMorgan, said the July CPI report showed inflation was down 0.6% from its June peak and 8.5% from a year earlier, giving people a sense that inflation is cooling. hope. At the same time, the outlook for the CPI in August also "looks good," Kelly noted, with gasoline prices, airfare, hotel prices and used car prices all continuing to decline very steadily, which may be enough to lead to the central bank's policy meeting in September for the sixth consecutive year. Two modest CPI reports.
However, the minutes of the Fed's July meeting showed that Fed officials agreed on the need to raise the benchmark interest rate high enough to slow economic growth to combat high inflation, before lowering it to the 2 percent target. But JPMorgan said the danger of a recession outweighed the risk of inflation, and keeping interest rates at their current level could cause long-term damage to the economy.
"If the Fed recognizes this in the coming weeks, they will slow the pace of monetary tightening, which could further boost U.S. bonds and equities," Kelly said in a note to clients on Monday. "If they don't, then interest rates may It will rise in the short term, but it will probably fall next year. The end result is likely to be the same - slow growth, moderate inflation and interest rates."
"However, a more volatile economic and market cycle that could be triggered by an overly aggressive Fed could lead to a further near-term reassessment of valuations that could favor value over growth, and ultimately lead to a depreciation of the dollar in favor of international," Kelly said. the market and not the U.S. stock market.”