Following the release of the latest October Consumer Price Index (CPI), David Kelly, Global Strategist at JPMorgan Chase, recently stated in an interview that the Federal Reserve (FED) might implement a small interest rate cut in December, but this remains uncertain due to factors such as impending tariff policies and fiscal plans.
CPI Shows Slower Growth; Uncertainty Remains Over FED’s December Rate Cut
The U.S. overall Consumer Price Index (CPI) for October increased by 2.6% year-over-year, while the core CPI, excluding food and energy, rose by 3.3% annually, aligning with market expectations. Kelly noted that the FED is currently monitoring subsequent CPI and PCE data, and FED Chair Jerome Powell has previously indicated that a single data point is insufficient to determine policy direction. Kelly believes that the market has already anticipated another small interest rate cut by the FED, but many more data points need to be considered.
Trump’s Strengthened Tariff Policy and the “Trade War” Slow Global Economy
Kelly pointed out that the new tariff policies from the Trump administration could impact market inflation expectations and have a greater effect on “low-income households.” He also warned that the “trade war” could lead to a global economic slowdown and increase inflationary pressures. Higher tariffs would raise the prices of imported goods, affecting consumer spending and, consequently, slowing global trade.
New Fiscal Plans May Drive Long-Term Inflation; Fiscal Deficit Peak Expected in 2026
Kelly further stated that the market expects these fiscal stimulus plans (such as tax cuts) to be gradually implemented over the next few years, with a significant impact on the economy by 2026. He emphasized that a larger fiscal deficit may emerge at that time, potentially increasing long-term inflationary pressure.
Kelly believes that the market is gradually digesting these future factors that could influence the U.S. economy, particularly for investors holding substantial U.S. stocks in their portfolios, which is a warning signal to note.
Corporate Tax Rates May Be Lowered Again; Investors Should Monitor FED Policy
Despite rising inflation risks, Kelly also noted that the market is eagerly anticipating the Trump administration’s potential reduction in corporate tax rates for U.S. manufacturing companies, from the current 21% to 15%. Kelly stated that such a tax cut could significantly boost corporate earnings and potentially drive the U.S. stock market.
However, he also mentioned that given the “slim majority” of Republicans in both chambers of Congress, the passage of the tax rate reduction policy remains uncertain. In light of various uncertainties, Kelly advised investors to closely monitor changes in FED policy to balance their investment portfolios and manage risks.