The Fed has won its war against inflation and needs to end its interest-rate increases, says JPMorgan Asset Management's investment chief

• The Fed can claim victory in its war against inflation and needs to stop hiking interest rates, according to JPMorgan's David Kelly.
• "I think they need to stop. This is a war that they've won, and they're in danger of tipping the economy into recession," he said.
• Kelly expects three consecutive rate increases of 25 basis points each by May and sees borrowing costs staying there till year-end.

The Federal Reserve has won its war against inflation and needs to end its interest-rate increases to prevent a recession, according to JPMorgan Asset Management's investment chief.

The likelihood, however, is that the US central bank isn't yet done with monetary tightening, David Kelly told Bloomberg Thursday, adding more rate hikes are expected from February onward.

"I think they need to stop. This is a war that they've won, and they're in danger of tipping the economy into recession. I think they're making the fiscal problem worse, so I wish they would be done," Kelly said.

US inflation has been on a steady decline since mid-2022, with the annual rate for December coming in at 6.5% — the slowest pace in more than a year.

That has stoked optimism that price pressures are cooling in response to the Fed's most aggressive monetary tightening campaign since the 1980s. The central bank has boosted its benchmark rate close to 4.5%, from almost zero last March.

Despite the decline in inflation, market consensus is that the Fed will raise rates by 25 basis points at its February 1 meeting, Kelly pointed out. The institution is likely to announce three such increases by May before maintaining rates at those levels through year-end, according to him.

"That's what they want to do. The question is, will the economy be strong enough to allow them to hold rates at that relatively high level," Kelly said.

He added it's too early to tell whether the US economy is resilient in the face of the rate hikes. "What we know for sure is the economy is going to be growing slowly," Kelly said.

"We've got a very low savings rate and I think that's a big problem because what's happened is, consumers have been living beyond their means for the last few years because of government handouts and if they try to normalize that savings rate - if they stop increasing their borrowing as much - that's going to slow consumer spending," he added.