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Jpmorgan: One more rate hike, first cut in September
Bob Michele, jpmorgan's chief investment officer, said on Bloomberg Television on Wednesday that the Fed will raise rates again in May, but will start cutting rates in September.
The Fed began a rate-raising cycle in early 2022, raising its benchmark overnight lending rate from zero to 5% in response to the worst inflation in decades. Michele called it "the most aggressive and harmful pace of tightening in central bank history. Interest rate shocks are being passed through the economic and financial systems on a massive scale."
Michele still expects another rate hike at the Fed's May policy meeting because the central bank focuses on lagging indicators even though inflation is falling sharply. He said:
"The Fed is not done raising rates, and I think they will raise rates again."
He added, "It's totally unnecessary."
Michele said the rate-raising campaign will start to produce a severe moderate recession by the end of the year, and the central bank will start cutting rates in September because data coming in before then will show the U.S. economy is already halfway to contraction. He expects inflation to be below 3 percent when the Fed starts cutting rates.
"Historically, it takes an average of 13 months from the last Fed rate hike to a recession. We said the last rate hike would be in May, and by November, December, it would be in recession." "Halfway through the recession, the Fed started cutting rates, and that's how it opened up in September."
In an earlier interview with the media, Michele noted that the shock of the pace of rate hikes makes U.S. regional banks "part of the problem." The same pressures that hobbled Silicon Valley Bank and Signature Bank in March are now plaguing First Bank.
He also said:
"It would be a bit naive to say the problem is limited to First Bank and the bank."
In Michele's view, the main reason for the outflow of bank deposits is that consumers need money to buy higher-priced goods at a time of record high inflation, rather than just chasing higher returns.
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