The Federal Reserve has been on a rate-hike roll in 2022 and 2023, boosting interest rates 11 times and lifting the benchmark federal funds rate from 0.25% to as much as 5.5% in the process.
With the next Federal Open Market Committee meeting scheduled Sept. 19 and 20, recent inflation and consumer-sentiment numbers suggest the Fed may continue to raise rates to combat the rising cost of living, or at a minimum keep rates right where they are.
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That would be a mistake, says JPMorgan Asset Management Chief Investment Officer Bob Michele.
Appearing on Bloomberg Television this week, Michele said the Fed should pivot and cut interest rates in a rising recessionary environment.
"The magnitude of the slowdown we're seeing across the board tells us that we'll probably still be hitting recession around year-end, so they'll be cutting rates by then," Michele told Bloomberg.
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Michele points out that the Fed can be famously fickle about the direction of rate hikes in volatile economic times.
That’s pretty much what happened in 2021 when the central bank called inflation a short-term affair but shifted gears and began its long interest rate campaign when it became apparent that inflation was anything but short-lived.
"This is the (same) Fed that promised us "transitory" and then within a couple of months, changed their mind and started hiking rates. We think we're going to see the same thing this time," Michele told Bloomberg. "They're going to tell us that they're going to keep rates higher for longer until inflation is at their target.”
For now, Michele seems to be on an island with his call for a rate cut. Citibank recently called for another 0.25 percentage point rate hike while market traders hold the odds of keeping rates where they are at 97%, according to the CME FedWatch Tool.
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