JPMorgan Now Expects Nine Straight Fed Rate Increases Until March 2023

JPMorgan Chase economists predict that the Federal Reserve will raise interest rates by 25 basis points at each of its subsequent policy meetings through March 2023 in order to bring surging inflation under control. By March of next year, the rate would have risen nine times in a row, reaching 2.25 percent.

The estimate came as consumer prices in the United States rose by the most in four decades in January, raising fears of an overheating economy and a dramatic stock market selloff.

In recent weeks, a number of Federal Reserve officials have hinted at the likelihood of quicker policy tightening. Given the rapid rise in inflation, Charles Evans, president of the Federal Reserve Bank of Chicago, said the Fed needed to make a "substantial adjustment" to its "wrong-footed" monetary policy because of fast raised inflation.

In this weekend's cover story, Barron's examines the issues facing Fed Chairman Jerome Powell and the central bank.

The futures market currently expects a 64 percent likelihood of a 25-basis-point rate hike at the Fed's next meeting in March, with a 36 percent possibility of a more aggressive 50-basis-point hike.

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 believe the danger that central banks modify their perception of the need to create sluggish growth — and the resulting impact on global financial conditions — is now the most serious threat to an otherwise robust global backdrop," he wrote.

JPMorgan isn't the only Wall Street firm that expects more aggressive rate rises in the future. This year, Goldman Sachs predicts seven raises, up from its previous expectation of five. Bank of America has likewise raised its estimates, predicting seven rises this year, or one increase at each meeting.