JPMorgan Chase warns: The anti-inflation process may be over and the Fed has no reason to cut intere

Investors have been waiting with bated breath for the Fed to cut interest rates, but as things stand now, there's a good chance the Fed won't need to take any action at all.

Oksana Aronov, a strategist at JPMorgan Chase, said that the Fed’s case for cutting interest rates is not convincing in the current environment. The head of market strategy and fixed income at JPMorgan Chase said in an interview:

"If I were Powell, what would be my real motivation to cut interest rates now? The economy is doing well, the unemployment rate is below what the Fed considers to be a neutral level, inflation is above target even in their longer-term forecasts, and the economy does not appear to be suffering from high Limitations on interest rates.”

She added, "Without any damage, it's hard to see why the Fed would do anything here."

Aronov pointed out that, in fact, expectations for U.S. economic growth in 2024 have only increased. The Fed's latest summary of economic forecasts showed officials expect real GDP growth to reach 2.1% this year, up from the 1.4% forecast in December.

Other economists, such as Apollo Asset Management's Torsten Sløk, also predict the Fed will not cut interest rates this year. If that happens, it will be a problem for fixed income investors.

Aronov said, "As time goes on, people will continue to be disappointed because we think the 10-year Treasury yield is still very much reflecting 2% inflation. If you look at the 10-year Treasury yield "If it is economic growth plus inflation, then it does not reflect current levels of growth and inflation, nor does it reflect future levels as guided by the Fed."

For U.S. stocks, the situation is a little different. She said that the stock market appears to be quite frothy from the perspective of the upcoming rate cut, and although the rate cut seems to be overshadowed by strong corporate performance, the corporate performance brings more momentum to the stock market.

Not only that, JPMorgan Chase also released another report and expressed caution about expectations for continued decline in inflation. The bank said the disinflation in global commodity prices appears to be over.

JPMorgan warns that (rising) global labor costs are sending the opposite signal, and similar signs are emerging in commodity markets. JPMorgan noted that core commodity inflation (excluding autos), global shipping prices, oil and energy prices were all rising in the U.S. and euro zone.

Article forwarded from: Golden Ten Data