JPMorgan Sees May as CPI ‘High-Water Mark’ With Fed Set to Hold

JPMorgan Asset Management’s David Kelly predicted the Federal Reserve will decide that the latest inflation data aren’t worrisome enough to prompt policymakers to do anything other than stand pat on interest rates next week.

May’s reading of the consumer price index accelerated to the fastest in more than three years as the Iran war pushed up energy prices, outstripping Americans’ pay gains. But an underlying measure, which removes food and energy costs, rose less than expected. While the Fed will be left feeling “somewhat uncomfortable,” those numbers may mark inflation’s peak, said Kelly, chief global strategist at JPMorgan Chase & Co.’s asset management unit.

“Essentially we’re going to get a 12-zero vote to do nothing,” Kelly said Wednesday on Bloomberg Television’s Surveillance . “Inflation is higher than they want. But I think there’s a good chance that this month, May, will actually turn out to be the high-water mark for inflation in this cycle.”

Kelly cited falling gasoline prices in the US — down 9% from a May 20 peak — as evidence of diminishing cost pressures.

Traders see virtually no chance of a move on borrowing costs at next week’s two-day meeting, the first to be presided over by new Fed Chairman Kevin Warsh. But the odds of a hike by year-end have grown to almost 100% as the US-Israel war with Iran roils oil and gas markets. Before the war began in late February, markets had priced in over two cuts by December.

Inflation climbed 4.2% from a year earlier, the most since early 2023, according to Bureau of Labor Statistics data out Wednesday. Still, the core gauge increased 0.2% from the prior month, less than forecasts.

“It’s not nice seeing a four-handle,” Kelly said, referring to the headline year-over-year CPI reading, which is more than twice the Fed’s target. “There certainly is no excuse for easing at this point.” But the Fed can bide its time, he said.

(This story was produced with the assistance of Bloomberg Automation.)