J.P. Morgan Asset Management: The Fed may wait until December to hike rates again.

J.P. Morgan Asset Management: The Fed may wait until December to hike rates again. Tai Hui, Chief Market Strategist for Asia Pacific at J.P. Morgan Asset Management, said that after the U.S. Federal Reserve met to discuss interest rates, it unanimously decided to raise rates by 25 basis points to 3.754.00%. This move sends a clear signal: inflation remains the top concern, and the U.S. economy is still strong enough to withstand tighter policy. Although the rate hike was expected by the market, the updated projections show that there will be another rate hike before the end of the year, and U.S. rates are expected to remain high and continue into 2027. Key points from the Federal Open Market Committee (FOMC) updated Summary of Economic Projections: - Economic growth: The 2026 growth forecast was raised from 2.2% to 2.3%, and the 2027 forecast was also slightly revised upward. - Employment: The 2026 unemployment rate forecast was lowered from 4.3% to 4.1%, with the 2027 and 2028 forecasts also set at 4.1%. - Inflation: The 2026 headline PCE (Personal Consumption Expenditures price index) inflation forecast rose slightly from 3.6% to 3.7%, while the core PCE forecast rose from 3.3% to 3.4%. The 2027 inflation forecast remained at 2.3%, while the longer-term inflation forecast was anchored at 2.0%. - Interest rates: The median projection shows one more rate hike in 2026. The vast majority of participants expect at least one more rate hike before the end of the year. Tai Hui said that these economic projections reinforce the Fed's confidence in a "soft landing" scenario: economic growth remains resilient, the unemployment rate remains low, and inflation is showing a slow downward trend. Fed Chair Warsh's comments on data analysis, central bank independence, and the increasingly "K-shaped" economic situation, while providing more context, did not change the core policy signal. Why raise rates now? Recent economic data have not shown substantial new changes. Economic growth CKH HOLDINGS and the job market remain solid. Given this resilience, inflation is still above target; at the same time, affected by the Middle East conflict, energy prices have pushed up headline inflation. What has really changed is Warsh's leadership style he has taken a more proactive approach, striving to bring inflation back to target, which was fully reflected in his speech at Jackson Hole. Although the projections of FOMC members have not changed dramatically, the median projection shows one more rate hike before the end of the year and possibly further hikes in 2027, reflecting a shift in the committee's stance. Will there be more rate hikes in the future? There are currently no signs of inflation easing, especially considering the stalemate in the Middle East. This means the Fed may need to continue tightening policy to achieve its goals. Given that the October FOMC meeting is close to the midterm elections, the Fed may wait until December to act. What this rate hike means This is the first policy rate increase since July 2023, suggesting that rates may remain high in the medium term. The current bond yield level should not pose a threat to economic growth or risk assets, because it is only 50 basis points above the long-term neutral rate, and after adjusting for inflation, its restrictive degree is even lower. If the Fed maintains a "hawkish" stance as it moves toward 2027, investors will need to reassess asset valuations, especially technology stocks, which are relatively highly valued and sensitive to interest rate changes. J.P. Morgan Asset Management believes that the possibility of U.S. policy rates returning above 5% remains limited. Nevertheless, in the foreseeable future, the catalyst driving the continuation of the stock market bull run (namely, rate cuts) seems unlikely to appear. Investment implications Affected by this news, the U.S. dollar strengthened. Developed-market central banks are tightening monetary policy in unison to address inflation concerns. The European Central Bank already raised rates by 25 basis points last week. The bank expects the Bank of Japan to raise rates by 25 basis points later this week. All of these factors may prompt investors to re-examine portfolio diversification and consider whether a more balanced stock-bond allocation is needed; after all, current yields are higher than a year ago, and higher policy rates may lead to valuation corrections and slow economic growth as we move toward 2027. For fixed income assets, rising yields are making them attractive again. That said, concerns about fiscal sustainability and bond issuance by technology companies competing for capital may still bring more volatility to the long end of the yield curve. Therefore, in the bank's view, adopting a short-duration strategy for fixed income assets remains reasonable. In the equity market, debates over the pace of development of frontier artificial intelligence (AI) models, combined with expectations of higher rates, may put some pressure on growth stocks. The resilience of economic growth and the high-rate environment may benefit sectors such as financials, consumer discretionary, and industrials. Although the market is cautious about AI model development, the bank believes that the Jiangsu Asia-Pacific Light Alloy Technology sector will still benefit from continued growth in demand; at the same time, investors may also want to look to other international markets such as Europe, where recent earnings revisions have been strong and valuations are reasonable, and the lower share of technology stocks may instead become an advantage in the current environment.