The Federal Reserve may not have as much room to cut interest rates as it thinks, and central bankers would be better off skipping another decrease in December, according to one JPMorgan bond expert.
Bill Eigen, the head of the Absolute Return and Opportunistic Fixed Income team at JPMorgan Asset Management, cautioned markets ahead of the Fed's next meeting, adding that he believed the central banks should pause cutting interest rates .
That's due to a handful of signs the economy is starting to heat up again, he added, pointing to strong GDP growth, slightly hotter-than-expected inflation data last month, and record-high stock prices .
"We're growing at 3.2% this quarter, just grew at 3%. Inflation dropped into the mid-2s, and is now turning up into the 3s. We've got an equity market at all-time highs, up 30%, and crypto going through the roof," Eigen said, speaking to CNBC on Friday. "You would say, 'Oh, the Fed's tightening, right?' No. They're going the other way. They're cutting into an accelerating economy with inflation turning up."
Inflation rose 2.6% year-over-year in October, hotter than the prior month's 2.4% pace of growth. Core inflation, which excludes volatile food and energy prices, rose 3.3%, the same rate recorded in the prior month.
Wages, services, and shelter inflation look particularly sticky or are potentially even rising, Eigen added. Shelter prices remained one of the largest drivers of inflation in October, rising 4.9% year-over-year.
"I really think they need to reconsider this cutting path they're on given the data. They said they're paying attention to the data," he said. "So, as far as next week, what are they going to do? I know what I think they should do. I think they should stop."
The Fed, which has cut interest rates 75 basis points so far this year, could also be closer than it thinks to the neutral rate — a hypothetical interest rate level that causes the economy to neither expand nor contract, Eigen added.
Traders, though, are growing increasingly bullish on the prospect of another 25 basis point cut from the central bank when it meets for its policy meeting this month. Markets seen an 89% chance the Fed will trim its target rate another quarter-point, according to the CME FedWatch tool, up from 66% a week ago.
The interest rate outlook remains mixed on Wall Street, with some forecasters expressing hesitation at the possibility of taking interest rates much lower.
Deutsche Bank suggested the Fed may not be able to cut interest rates at all in 2025, thanks to higher inflation risks stemming from some of Trump's proposed policies.
Goldman Sachs, meanwhile, foresaw rates dropping to as low as 3.25% by the end of 2025, suggesting that the Fed will need to loosen monetary policy to address growth headwinds from Trump's tariff plan.
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