Job growth will slow and the Fed may regret raising rates too aggressively by 2023, says JPMorgan Asset Management chief strategist

The Federal Reserve should be careful about raising interest rates too quickly, said JPMorgan Asset Management chief strategist David Kelly, who believes job growth and the economy will slow soon.

“It’s important not to be too aggressive right now because if you raise rates too much right now, you could have a real problem at the end of the year and into 2023,” Kelly said of the central bank, which meets on July 26. 27 and is expected to raise rates another 50-75 basis points to cool inflation.

Kelly thinks the economy is already showing signs of cooling. GDP contracted 1.6% in the first quarter and has remained relatively stagnant.

And there are other signs that the economy is headed for a slowdown. Prices of key raw materials such as gasoline have fallen, he noted. Meanwhile, the The US dollar has hit a 20-year highand the decline in massive public spending represents the biggest fiscal drag since the end of World War II.

“There is a lot of ballast in this economy. It’s going to slow down. Inflation is going to reverse and they have to be patient,” Kelly said. “If they are too aggressive right now, they will regret it later.”

The market anticipates an overreach by the Fed and expects it to start easing again next year, he added.

And while consumer spending on services has been strong, Kelly warned that low- and middle-income households are being squeezed by fiscal drag and will eventually hit credit card limits.

“The labor market is running behind schedule, so there’s kind of a lag in the downturn in the economy, but I think it’s still coming,” he said. “And I think the Fed has some interesting sailing to do here.”

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