Hike rates

The Fed will raise rates by 75 basis points in September

  • The Fed’s September FOMC meeting will produce another outsized interest rate hike, according to JPMorgan.
  • The bank expects the Fed to hike rates 75 basis points in September before pivoting.
  • Cooling inflation data and a Fed pivot should continue to bode well for growth stocks, JPMorgan said.

Investors should expect another outsized interest rate hike from the Federal Reserve next month, according to a note released Monday by JPMorgan.

JPMorgan analyst Mislav Matejka said while inflation has shown signs of slowing via falling commodity prices, the Fed will raise rates another 75 basis points at its next FOMC meeting at the end of september.

This would market the third straight rate hike where the Fed raised rates by 75 basis points, and it would take the effective fed funds rate above 3% for the first time since early 2008, eclipsing the high of 2, 5% observed in 2019. .

But after September’s likely interest rate hike, Matejka expects Fed Chairman Jerome Powell to be more flexible in future moves, which will essentially lead to a move away from outsized rate hikes. observed in recent months.

“Now that the fed funds rate has risen above what is traditionally considered a neutral level, it is likely that the Fed will become more sensitive to the incoming data flow,” Matejka said.

And with cooling house prices low, gasoline prices are down significantly from their recent high and key agricultural prices like wheat are also seeing steep declines, chances are the Fed will come to the conclusion that it can slow down its future rate hikes and wait to see how everything works out.

“Indeed, our economists think that inflation will come down significantly,” Matejka said. JPMorgan projects that year-over-year US CPI inflation will fall from its recent peak of over 8% to just 3% by July 2023.

“Inflation futures show a strong link to the price of Brent, and the recent easing is welcome for inflation trends. We expect another outsized Fed hike in September, but post that we would be looking for the Fed not to surprise the markets on the hawkish side again,” Matejka said.

Overall, this would be good news for growth stocks relative to value stocks, and should help the broader stock market continue to recover from its mid-June low, Matejka said. JPMorgan expects the S&P 500 to end the year at 4,800, representing upside potential of 15% from current levels.