The Tell: Fed seems to ‘draw a line in the sand’ on inflation, says JPMorgan, as danger of recession exceeds risk of inflation

by | Aug 22, 2022 | Stock Market

With central bankers heading to Jackson Hole, Wyo., this week for the Federal Reserve’s most important economic policy event of the year, officials have seemed to “draw a line in the sand” on inflation, as there are reasons to believe that four-decade-high inflation will continue to cool while recession risks are rising, a JPMorgan strategist said in a note Monday. 

According to David Kelly, chief global strategist at JPMorgan Asset Management, the July CPI report, which showed inflation dropping 0.6% from its June peak for a year-over-year rate of 8.5%, offered some hope that inflation is cooling down. Meanwhile, the outlook for August CPI also “looks good,” with a very steady continued decline in gasoline prices, airline fares, hotel rates and used-vehicle prices, which might be enough to generate a second consecutive mild CPI report ahead of the central bank’s policy meeting in September, noted Kelly.  See: Fed Jackson Hole preview: Powell to stress a recession won’t stop Fed’s fight against high inflation However, the minutes of the July FOMC meeting showed that Fed officials agreed that it was necessary to move their benchmark interest rate high enough to slow the economy to combat high inflation and then bring it back down to its 2% target. But according to JPMorgan, the danger of recession has already exceeded the risk of inflation, and staying at current levels could inflict long-term economic damage.  “If the Fed recognizes this in the next few weeks, they will moderate the pace of monetary tightening, potentially giving a further boost to U.S. bond and stock markets,” Kelly said …

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