JPMorgan Asset Management’s Bob Michele expressed surprise at the hawkish tilt from the Federal Open Market Committee under new Chairman Kevin Warsh, saying policymakers sense more risk from inflation pressures than Wall Street had expected.
“Half the committee is expecting rate hikes this year, which is a real shot across the bow at the market,” said Michele, JPAM’s chief investment officer and global head of fixed income. “I think they’re getting ready for rate hikes.”
Warsh’s debut meeting of the Federal Reserve’s policymaking body tempered hopes that price pressures would ease after the run-up in oil costs due to the US-Iran war. “Nobody is thinking that this inflation will be transitory enough, and we’ll see disinflation between now and the end of the year,” Michele said in a Bloomberg Television interview.
Richard Clarida, a former Fed vice chair who is now global economics adviser at Pacific Investment Management Co., was asked whether he detected any dovish signals from the Fed. “Not at first glance or first listen,” he said.
Policymakers’ new projections showed nine officials foresee at least one quarter-point rate increase this eyar, while nine others expected no moves or a cut. That result, along with the elimination of the easing bias in the Fed’s positioning, sent Treasury yields surging and dragged US stock indexes into the red.
Warsh landed the job earlier this year after an unprecedented campaign by President Donald Trump to disparage then-Fed Chair Jerome Powell. Trump championed the idea of immediate rate cuts, fostering the perception that Warsh — who struck a hawkish position in his previous service as a Fed governor — would press for reductions.
Michele said the underlying economic strength made cuts a highly unlikely scenario. When it comes to easing, Warsh is “destined to disappoint” Trump, Michele said. “It can’t work out any other way.”
The committee appears “scarred” by its 2022 experience with inflation, Michele said, and is watching other central banks raise rates with bond markets responding positively, prompting a reconsideration of its stance.
Written by: Lisa Abramowicz and Scarlet Fu — With assistance from Sandra Mergulhao @Bloomberg
The post “JPMorgan’s Michele Says Fed Market Message Is to Brace for Hikes” first appeared on Bloomberg