ATFX-JPMorgan warns: Continuing to raise interest rates will be dangerous!

atfxThe official website - After Wednesday's data showed that U.S. service sector activity rose to a six-month high, the market also slightly increased bets on the Federal Reserve to raise interest rates again. In response, David Kelly, chief global strategist at JPMorgan Asset Management, warned that if the Federal Reserve raises interest rates again when inflation is already slowing,Would put American consumers in a "dangerous" position。

Kelly said in a TV interview on Wednesday:

"It would be very unwise for the Fed to raise rates again just because of the short-term enthusiasm in the service sector. A lot of the relationships they rely on don't really work. They are in uncharted territory to some extent. I think there is a window of opportunity for a soft landing."

A string of stronger-than-expected economic data over the past few weeks has prompted many on Wall Street to change their views on whether the Federal Reserve has ended its aggressive monetary tightening campaign. That view comes against a backdrop of resilient US consumption. For Mr. Kelly, that will eventually change.

"They should be very aware that consumers are facing a squeeze," he said. "They're facing higher gas prices, higher gas prices, student loans to recover. People have to deal with these higher mortgage rates." There are limits to that, so you're going to see a slowdown in consumer spending. "

He also pointed out that...The cooling labor market should give the Federal Reserve room to pause interest rate hikesThe latest non-farm payrolls increased by 187,000, but the data for the previous two months were significantly revised.

"The real problem is the labor market, and if you look at the average number of new jobs over the past three months, it's been falling, falling,"It will become negative sometime early next year". He added:

"Once we see two negative jobs reports, all bets are off because the Fed will realize'Gee, I guess we did push the economy into recession. We're sorry about that '."

The futures market is barely pricing in the possibility of a rate hike when Fed officials meet again on September 19-20. Meanwhile, swap contracts show bets on a November rate rise rising to 60 per cent. So far, the Fed has raised rates 10 times in a row, pausing only in June before raising them again by 25 basis points in July.

Boston Federal Reserve President John Collins said Wednesday that policymakers need to be patient as they evaluate economic data to determine their next move, while former St. Louis Fed President Brad noted Wednesday that officials should continue to expect another rate hike this year when they update their forecasts later this month.

For Kelly, coming to the middle of the rate hike cycle is the most dangerous part of the tightening process.

"If you told me the Fed had just cut rates and could cut rates in the future, would you borrow today? No, you would wait," he said, adding that it would "freeze" the economy."The most dangerous moment for the economy is when the Fed cuts rates a little and says there will be more."