Summary
J.P. Morgan now projects the Federal Reserve will raise its policy rate by a quarter point in December, advancing its earlier outlook for a hike in the second half of 2027. The change follows the Fed's decision to leave rates unchanged at its July meeting and remarks from Fed Chair Kevin Warsh that, while reaffirming the commitment to lower inflation, provided limited guidance on the policy steps required to bring price growth down to the 2% target.
What changed
The bank said Warsh's comments cast doubt on the new chair's credibility in delivering lower inflation, a view that could prompt the remainder of the Federal Open Market Committee to feel greater urgency in executing its mandate, according to a J.P. Morgan note issued on Wednesday. The central bank's choice to hold rates in July was not unanimous: three of the 12 FOMC members dissented, preferring a 25 basis point increase.
Inflation and near-term risks
Underlying inflation had accelerated through last month, the note said, driven by higher fuel and food costs and robust AI-related business spending. Despite those pressures, Warsh did not present a rate increase as necessarily the correct immediate response. J.P. Morgan nonetheless expects rates to be at 3.75% to 4.00% after a December hike, while noting the possibility of an earlier move in September should inflation continue to intensify.
Market reaction and probabilities
Markets trimmed the likelihood of a September increase following the Fed statement. The CME Group's FedWatch tool showed the probability of a September hike at 65.2%, down from 81% before the policy statement.
How other firms see policy
Broker forecasts diverge. Goldman Sachs and Barclays continue to anticipate no further rate moves through the end of the year. BofA Global Research projects three rate hikes beginning in September. Citigroup, which has historically leaned dovish, retained its forecast for rate cuts in October and December of this year and another cut in January 2027 after the July meeting.
Implications
The revised J.P. Morgan outlook underscores ongoing uncertainty about the path of U.S. monetary policy amid inflation that remains above the Fed's target and mixed signals from policymakers. The combination of committee dissent, persistent price pressures from energy and food, and elevated business spending tied to AI factors into the debate about whether and when the Fed will adjust policy further.