JPMorgan AM: 'Foggy' 2025 Keeps Fed on Hold Next Year

As the Federal Reserve (Fed) wraps up its September meeting, JPMorgan Asset Management (AM) has shared its perspective on the economic outlook for 2025. According to JPMorgan AM, the uncertainty surrounding the economic trajectory in 2025 may prompt the Fed to adopt a more cautious approach in 2024, keeping the federal funds rate on hold next year. This prediction is based on the Fed's Summary of Economic Projections (SEP), which projects a median federal funds rate of 3.4% in 2025, with a range of 3.1% to 3.6%, indicating a wider dispersion of views among Fed officials regarding the appropriate monetary policy stance for the subsequent year.

The "foggy" economic outlook in 2025 is influenced by several factors. Firstly, the Fed's rate hike cycle is expected to slow down, with the federal funds rate projected to peak at 4.6% in 2024 and then decline to 3.9% in 2025 (Source: FOMC Summary of Economic Projections, March 2024). This slower pace of rate hikes may create uncertainty about the Fed's future policy direction. Secondly, the economic growth trajectory is expected to moderate, with real GDP growth projected to decelerate from 2.1% in 2024 to 2.0% in 2025 (Source: FOMC Summary of Economic Projections, March 2024). This slower growth may impact corporate earnings and investor sentiment. Lastly, geopolitical tensions and labor market dynamics may continue to pose risks to the economic outlook.

By 2024, these factors may change as the Fed's rate hike cycle comes to an end, economic growth stabilizes, and geopolitical tensions potentially ease. The Fed's projections for inflation, unemployment, and GDP growth in 2024 reflect this uncertainty in 2025. In 2024, the Fed projects a median GDP growth of 2.1%, unemployment rate of 4.0%, and PCE inflation of 2.4%. These projections suggest a stable economy, but the uncertainty in 2025 may keep the Fed on hold. The Fed's September 2024 projections show a wider range for GDP growth (1.8-2.4%) and PCE inflation (2.3-2.7%), indicating a higher degree of uncertainty.

To navigate the uncertainty in 2025, the Fed may employ a mix of monetary policy tools. These tools could include interest rate adjustments, forward guidance, and quantitative easing. By adjusting interest rates, the Fed can influence borrowing costs, affecting consumer spending and business investment. Forward guidance can help manage market expectations and provide clarity on the Fed's policy intentions. Quantitative easing can inject liquidity into the economy, stimulating growth. The Fed's decisions in 2024 will be crucial in shaping the economic trajectory for 2025.

In conclusion, JPMorgan AM's prediction of a "foggy" economic outlook in 2025 suggests that the Fed may keep the federal funds rate on hold next year. This uncertainty is driven by the slowing rate hike cycle, moderating economic growth, and geopolitical tensions. As the Fed's projections for 2024 reflect this uncertainty, investors should remain vigilant and adapt their strategies accordingly. By employing a balanced portfolio, combining growth and value stocks, and supporting strategic acquisitions, investors can navigate the uncertainty and capitalize on opportunities in the 2025 economic landscape.