Economists at JPMorgan Chase said the Federal Reserve would likely raise interest rates by 25 basis points at each of the future policy meetings until March 2023 in an effort to get soaring inflation under control. That would mean nine consecutive rate increases, to 2.25%, by March next year.
The forecast came as U.S. consumer prices in January showed their biggest jump in four decades, triggering concerns about an overheated economy and sharp selloff of the stock market.
A number of Federal Reserve officials have signaled the possibility of faster policy tightening in the past weeks. On Friday, Charles Evans, the president of the Federal Reserve Bank of Chicago, said the Fed needed a “substantial adjustment” of its “wrong-footed” monetary policy given the sharp increase of inflation.
The challenges facing Fed Chairman Jerome Powell and the central bank are examined in the Barron’s cover story this weekend.
The futures market is now priced for a 64% probability of a 25-basis-point rate boost at the next Fed meeting in March, and a 36% chance of an even more aggressive increase of 50 basis points.
Following the latest inflation readings, JPMorgan economists adjusted their global CPI forecast for the first quarter to 5.7% higher from the same period last year, up from the previous forecast of a 3.5% growth.
“We now no longer see deceleration from last quarter’s near-record pace,” wrote the team led by chief economist Bruce Kasman in a research note.
Although the recent price pressures in the energy sector will likely fade, recent data are pointing to broadening inflation and “a feedback loop taking hold between strong growth, cost pressures, and private sector behavior,” Kasman wrote.
“We think the risk that central banks shift and perceive a need to generate slow growth—and the corresponding impact on global financial conditions—is now the most significant threat to an otherwise healthy global backdrop,” he wrote.
JPMorgan isn’t the only bank on Wall Street predicting more aggressive rate hikes. Goldman Sachs is forecasting seven increases this year, up from its earlier prediction of five. Bank of America also increased its forecasts and now expects seven increases this year, or once at every meeting.