JPMorgan’s Chief Global Strategist, David Kelly, forecasts that the Federal Reserve will keep interest rates unchanged through 2025, citing persistent inflation from tariffs and a cooling economy by next year. Discover the economic outlook, key data, and what it means for investors.
JPMorgan Strategist Predicts Steady Interest Rates Through Year-End
JPMorgan Asset Management’s Chief Global Strategist, Dr. David Kelly, anticipates that the Federal Reserve will maintain its current interest rates through the end of 2025. This outlook is driven by persistent inflationary pressures, largely attributed to ongoing tariffs, and a gradual cooling of the U.S. economy.
Key Points from David Kelly’s Outlook
- Interest Rates: The Federal Reserve is expected to keep rates steady throughout 2025, with no immediate plans for rate cuts.
- Inflation: Tariffs are likely to keep inflation elevated, potentially reaching 3.5% by year-end. Kelly believes inflation may not ease until 2026.
- Economic Growth: Real GDP growth is projected to slow, with forecasts ranging from 1.7% to 2.1% for 2025.
- Unemployment: The unemployment rate could edge up to around 4.5% by the end of 2025, stabilizing as labor force growth remains limited.
- Policy Uncertainty: Changes in tariffs, tax policy, and immigration could introduce volatility, but the baseline scenario is one of steady rates and moderate growth.
Economic Outlook Table
| Indicator | 2024 (Actual/Estimate) | 2025 (Forecast) | Notes |
|---|---|---|---|
| GDP Growth | ~3.0% | 1.7%–2.1% | Growth slowing due to trade policy drag |
| Inflation (CPI) | ~3.0% (mid‐2024) | ~3.5% | Tariffs could push CPI higher (to ~3.5%) |
| Unemployment Rate | 4.1% | ~4.5% | Modest rise as labor market eases |
| Fed Funds Rate | 5.25–5.50% (Dec 2024) | ~3.75–4.50% | Fed may pause/cut as growth slows |
Factors Influencing the Fed’s Decision
- Tariffs: Higher tariffs are increasing costs for businesses and consumers, contributing to persistent inflation.
- Policy Shifts: Potential changes in tax and immigration policy could impact growth and inflation, but the Fed is likely to wait for more clarity before adjusting rates.
- Consumer Spending: While still positive, consumer spending is slowing, contributing to a downshift in economic momentum.
Expert Insights
The U.S. economy’s momentum is downshifting into a more normal pace. While this alone is unlikely to trigger a recession, it does leave the economy more vulnerable to shocks.— Dr. David Kelly, JPMorgan Asset Management
What Does This Mean for Investors?
- Short-Term: Expect continued volatility in both equity and bond markets as policy uncertainty remains high and inflation stays elevated.
- Long-Term: As the economy cools and inflation pressures subside (potentially in 2026), the Fed may consider lowering rates, which could present new opportunities for investors.
Summary List
- Fed likely to keep rates steady through 2025.
- Inflation may peak at 3.5% due to tariffs.
- GDP growth slowing to around 1.7%–2.1%.
- Unemployment could rise modestly, but no recession expected.
- Policy uncertainty remains a key risk factor.
Investor Takeaways
| Time Frame | Economic Conditions | Market Impact | Investor Strategy |
|---|---|---|---|
| Short-Term (weeks–months) | Uncertainty from policy changes and sticky inflation; growth slowing sharply. | Higher volatility: defensive sectors outperform on policy/news shocks. | Rebalance & diversify: Take profits in overheated areas. Buy high-quality stocks on dips and use bond/alternative assets for stability. Monitor Fed guidance closely. |
| Long-Term (1–3 years) | Modest expansion continues but risks remain (tariffs, fiscal policy). Inflation likely above pre-pandemic norm. | Markets may grind higher amid earnings growth, but wide swings possible on policy news. | Stay diversified: Maintain global equity exposure and consider allocation to bonds and alternatives. Focus on fundamentals and quality companies. Remain vigilant as policy uncertainty unfolds. |
