The US Federal Reserve held its policy rate steady at its July meeting, but JPMorgan has brought forward its expectation for the first rate hike from the second half of 2027 to December 2026. The bank expects a 25-basis-point increase.
JPMorgan now expects the first US Federal Reserve rate hike in December 2026, previously expected in H2 2027.
JPMorgan cited rising fuel and food prices and strong corporate spending linked to AI investments as factors increasing inflationary pressure. After the December 2026 hike, the bank forecasts the Fed's policy rate will be in the range of 3.75-4.00%. If inflation remains stronger than expected, a September rate hike could also be considered.
According to the minutes, three out of 12 members of the Federal Open Market Committee (FOMC) voted for a 25-basis-point hike at the July meeting. Fed Chair Kevin Warsh reportedly emphasized commitment to the 2% inflation target but gave no clear policy guidance.
Goldman Sachs and Barclays expect no rate changes by the end of the year. BofA Global Research predicts three rate hikes starting in September, while Citigroup expects rate cuts in October and December 2026 and January 2027.
According to CME Group's FedWatch, the market probability of a rate hike in September is 65.2%, down from 81% before the Fed decision.
JPMorgan US Chief Economist Michael Feroli criticized the Fed Chair's unclear communication during the press conference. Feroli also noted growing questions about whether the Personal Consumption Expenditures (PCE) price index will remain the Fed's key inflation gauge.
JPMorgan stated that uncertain guidance from the Fed Chair may increase pressure on FOMC members to adopt an earlier rate hike. The bank said its forecast revision was driven by new assessments of the Fed's credibility, not market pressures.