JPMorgan strategist urges Federal Reserve to maintain interest rates

JPMorgan Asset Management’s top strategist wants the Federal Reserve to do something central bankers rarely get credit for: nothing at all.

David Kelly, Chief Global Strategist at JPMorgan Asset Management, said in a Bloomberg Television interview on August 12 that the Fed should keep interest rates unchanged following the release of July’s Consumer Price Index data. His reasoning is straightforward. Underlying inflation is cooling, and the best move right now is to let that trend play out without interference.

The case for standing still

Kelly didn’t mince words about where he thinks policy should land. “Absolutely they should stay on hold, and I actually think they will,” he said during the interview, projecting confidence that the central bank would resist pressure to move in either direction.

He described the current inflation environment as “Teflon inflation,” a colorful way of saying that price pressures aren’t sticking the way they used to. The July CPI data backed him up, showing subdued core inflation readings that helped push US Treasuries higher as bond traders priced in a more dovish outlook.

For Kelly, this isn’t a new position. Back in June, he argued that the Fed’s smartest play amid what appeared to be peaking inflation figures was simply to hold the line. Two months later, the data seems to be proving him right.

What the data actually shows

The July CPI release is doing a lot of the heavy lifting in Kelly’s argument. Core inflation, which strips out volatile food and energy prices, came in subdued enough to reinforce the narrative that the worst of the post-pandemic price surge is firmly in the rearview mirror.

Treasury markets responded accordingly. When core inflation prints come in soft, bond prices tend to rise as investors bet that the Fed won’t need to tighten further. That’s exactly what happened, with US government debt posting gains in the wake of the report.

Kelly has projected that the Fed will remain on hold through at least the end of 2026.

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