J.P. Morgan expects the Federal Reserve to implement just one additional interest rate hike in December before halting its monetary tightening cycle, according to a research note led by chief U.S. economist Michael Feroli.
Supply Shocks and PCE Data Shape Fed Outlook
The Federal Open Market Committee (FOMC) voted 12-0 on September 16 to raise its target benchmark rate range to 3.75% to 4%, marking the central bank's first rate increase since 2023. J.P. Morgan projects the FOMC will skip a rate increase at its October 28 meeting before delivering a final quarter-point hike on December 9, matching the median projection on the Fed's dot plot.
Core Personal Consumption Expenditures (PCE) inflation has remained above 3% every month this year, though recent data showed price pressures cooled to 3.4% at the end of August compared to Wall Street expectations of 3.7%. Feroli noted that inflation continues to look supply-shock-driven, arguing against a protracted tightening cycle extending into next year. The expectation for an October pause is reinforced by comments from New York Fed President John Williams, who signaled no immediate urgency to raise rates.
Task Force Reviews and Crypto Market Impact
Under Fed Chair Kevin Warsh—who ordered five internal task forces to review policymaking procedures with findings due by year-end—several key institutional shifts are being evaluated:
- Communications: The central bank may evaluate dropping the dot plot chart, which Feroli warned would reduce transparency without an adequate replacement.
- Balance Sheet: Reviewers may advocate for a smaller Fed portfolio, though Jay Barry, J.P. Morgan's head of global rates strategy, stated this would require extensive changes to payment rules and banking regulations.
- Productivity and Labor: Officials are studying artificial intelligence, which Warsh views as disinflationary, though near-term policy adjustments remain unlikely.
The macroeconomic policy stance comes as digital asset markets record heightened demand. According to CoinShares data, crypto funds drew record $3.55B inflows last week, marking the largest weekly total of 2026. Traders are closely watching whether institutional appetite will hold firm as PCE inflation data continues to influence market sentiment.
Why It Matters
A single remaining rate hike in December indicates that the central bank's tightening phase is nearing its terminal rate, giving crypto markets improved macroeconomic predictability. If supply-side inflation metrics continue to moderate toward the target level, risk assets could benefit from a stable interest rate backdrop moving into early 2027. However, potential structural revisions to Fed communications and balance sheet runoff rules under Chair Warsh could create renewed volatility across financial markets.
