On Wednesday (September 30) during Asian trading hours, the US dollar index rose and then fell back, currently trading around 101.30. JPMorgan Global Research's latest assessment provides a reference for the market's evaluation of subsequent Federal Reserve rate hikes. JPMorgan Global Research predicts that the Fed's hawkish shift will end with only one additional rate hike to curb the energy shock from the Iranian conflict and sticky inflation caused by AI supply and demand dynamics. JPMorgan expects the Fed to raise rates once more later this year, consistent with the signals from the quarterly dot plot filled out by FOMC members earlier in September. On September 16, the FOMC unanimously voted 12-0 to raise interest rates by 25 basis points, increasing the target range for the federal funds rate to 3.75% to 4%.

JPMorgan Chase expects only one more rate hike this year, consistent with the midpoint of the dot plot.

JPMorgan Global Research predicts the Federal Reserve's hawkish shift will end with only one additional rate hike. "Inflation continues to appear to be driven by supply shocks, so we don't foresee the rate hike cycle extending into next year," said Feroli. JPMorgan expects the Fed to raise rates once more later this year, consistent with the signals from the quarterly dot plot filled out by FOMC members earlier in September. "The rationale for a rate hike is simple: core PCE inflation has been above 3% every month this year and has made very little progress toward the 2% target recently," Feroli said. He added that Fed Chairman Warsh "has repeatedly and sternly warned of intolerance for inflation, which could jeopardize institutional credibility without some supporting action."

The market is pricing in a 72.5% probability of a rate hike in October and a 94.5% probability of at least one rate hike in December.

The CME Group FedWatch tool shows a 72.5% probability of another 25 basis point rate hike on October 28, and a 94.5% probability of at least one more rate hike at the final FOMC meeting of the year on December 9. Ferroli stated, "For us, we continue to expect another rate hike at the December meeting, consistent with the revised FOMC median forecast. Midterm elections aside, a credible reason for holding rates steady in October is that it will take time to observe the impact of rate hikes on the economy." However, he indicated that this is unlikely to mark the beginning of a longer rate hike cycle.

The September rate hike was the first in three years, and the dot plot indicates at least one more hike this year.

The 25-basis-point rate hike in September marked a renewed hawkish shift in monetary policy following persistent price pressures driven by rising energy costs from the conflict in Iran and geoeconomic shocks. Traders and Fed watchers widely anticipated the hike. The biggest surprise was that Fed policymakers indicated in their quarterly dot plot that one more rate hike was possible before the end of the year, and potentially more if stubborn inflation did not ease. The dot plot, the summary of economic projections released on September 16, projected a median federal funds rate of 3.6% by year-end, consistent with the current median of another 25-basis-point hike. Sixteen of the 18 policymakers involved expected at least one more rate hike before the end of the year. This rate hike, the first in three years, was the result of months of public and private discussions among Fed policymakers attempting to maintain interest rate stability while bringing inflation back to their 2% target.

Federal Reserve officials have been expressing a flurry of concerns about inflation.

Federal Reserve officials have been sending hawkish signals for weeks, with some further intensifying concerns about inflation following the September rate hike. Economists expect the August PCE price index to rise 0.4% month-over-month, and the core index to rise 0.3%, to be released on September 30. The September jobs report, due on October 2, is expected to show an increase of 100,000 jobs and an unemployment rate rising to 4.2%. In a speech on September 28, Fed Governor Cook stated that AI appears to be adding inflationary pressures to the economy in the short term, delaying the return of inflation to the 2% target. "Over the next few months, I expect AI construction, as well as the transmission of higher oil prices and supply chain disruptions related to the Middle East conflict, to continue to put pressure on inflation," she said in a prepared statement. "The labor market appears to be well-positioned to cope with rising interest rates." Other policymakers, including Governor Barr, Cleveland Fed President Hammark, New York Fed President Williams, and Philadelphia Fed President, have expressed concerns that policy may need to become more restrictive in the near future to bring inflation back to the 2% target.

Walsh's Special Task Force and Policy Framework

After Warsh took over as Federal Reserve Chairman in May, he quickly authorized five external expert task forces to conduct an independent review of the Fed's policy-making process. He stated that he expects to submit the findings by the end of 2026. However, this is not expected to change JPMorgan Global Research's benchmark forecast for interest rates. "Overall, while the task forces are likely to produce recommendations consistent with Warsh's preferences, any significant changes to the Fed's policy framework or interest rate outlook will require broader support from the entire FOMC," Feroli said. "These are task forces of the Chairman, not system-wide efforts, and this structure means that translating recommendations into actual policy is likely to be gradual and influenced by internal debate."

Summarize

JPMorgan Chase expects the Federal Reserve to raise interest rates only once more this year, consistent with the midpoint of its dot plot, believing that inflation is driven by supply shocks and will not extend into next year. The market prices a 72.5% probability of a rate hike in October and a 94.5% probability of at least one rate hike in December. The September rate hike would have been the first in three years, and the dot plot shows that 16 out of 18 officials expect at least one more rate hike this year. Fed officials have expressed concerns about inflation frequently; Cook stated that AI is increasing inflationary pressures, while Barr, Hammark, Williams, and the Philadelphia Fed president all indicated that policy may need to be more restrictive. Economists expect a 0.3% month-on-month increase in core PCE in August, and non-farm payrolls to increase by 100,000 in September, with the unemployment rate rising to 4.2%. Warsh's task force expects no change in its benchmark interest rate forecast. Future attention should be paid to the core PCE data on September 30th and the non-farm payroll data on October 2nd, as well as further statements from Fed officials. If the data supports a hawkish stance, expectations for a December rate hike may strengthen; if the data weakens, the rate hike path may need to be reassessed. (US Dollar Index Daily Chart, Source: FX678) At 14:27 Beijing time, the US Dollar Index was at 101.22.