JPMorgan: Fed and ECB Both Expected to Pause Rate Hikes This Week, but Tightening Pressures Remain Unresolved
nashnova research
JPMorgan expects both the Fed and the ECB to stand pat this week, but neither central bank has dropped its hawkish lean — the diverging rate paths ahead are now the key variable for market pricing.
Why is the Fed choosing to hold?
The last rate hike has not fully filtered through the economy. Non-farm payrolls softened and energy inflation is picking up — the Fed needs more time to watch.
Williams, Jefferson, Bowman, and Waller have all signaled there is no rush to hike at consecutive meetings — that messaging is the main anchor for the market's "pause" expectation.
This means → a pause is not a pivot. The Fed is waiting for data, and a December hike remains very much on the table.
How does the Fed explain holding when inflation is hotter?
JPMorgan flags a communication puzzle: in September the Fed hiked with core PCE — personal consumption expenditures excluding food and energy, the Fed's preferred inflation gauge — running at 0.2% month-on-month. This time the reading is expected at 0.3%, yet the Fed will likely hold. That gap needs a credible explanation.
The statement is expected to shift from "more timely" return to target to "timely restoration of price stability," adding language like "prepared to act" to keep December pricing alive.
In plain terms = the Fed must thread a needle: skip this meeting, but convince markets the next hike could come at any time.
What should markets watch after the decision drops?
Three things matter: statement language, dissenting votes, and press-conference tone — whether they land hawkish or dovish relative to expectations sets the direction.
Cleveland Fed President Hammack and Dallas Fed President Logan may cast dissenting votes in favor of a hike. Kashkari joining them is possible but not the base case.
This means → if rate-hike expectations shift higher, front-end Treasury yields and fed-funds futures implied rates will rise; a dovish surprise reverses the move. Longer-dated bonds and tech stocks must also digest inflation, term premium, and earnings shifts — no single variable drives them alone.
After the ECB pauses, how many more hikes are coming?
JPMorgan's call is more specific: hold this week, hike in December 2026 and March 2027, with a June 2027 hike as a hawkish-risk scenario.
Markets have already priced in at least a fourth hike this cycle. JPMorgan broadly agrees and sees a possible fifth — and final — move.
This reflects the eurozone reality: resilient growth and sticky inflation. October's flash PMI — purchasing managers' index, a gauge of economic momentum — dipped but still implies annualized growth of roughly 1.5%; core inflation stays above target through the second half of 2028.
French bond stress — will it change the ECB's pace?
JPMorgan says not yet. In the ECB's macro-financial conditions index, sovereign spreads are GDP-weighted across countries and account for only about 15% of the index. France's stress gets diluted; combined with falling German Bund yields, the index has actually edged lower over the past two weeks.
Activating the Transmission Protection Instrument — TPI, an emergency bond-buying tool designed to stop any single country's borrowing costs from spiraling — is extremely unlikely this week. Slowing or ending quantitative tightening also lacks justification.
In plain terms = defusing France's fiscal concerns falls first on the French government itself — a credible fiscal-adjustment commitment is what markets need. The ECB will not step in to foot the bill.
What could break these base-case calls?
JPMorgan names two risks: a Middle East escalation driving a sharp swing in energy prices, and a further ratcheting-up of sovereign-debt stress.
If oil and gas prices keep climbing, the inflation overshoot widens and the return to target takes longer. This means → the number of hikes could end up higher, not lower, than the base case.
The ECB will assess meeting by meeting, with no preset endpoint.
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