The Fed won't pivot from its rate hikes until the end of 2023, as inflation is persistent and the economy isn't slowing as expected, JPMorgan strategist says

• The Fed won't pivot from rate hikes until the end of 2023, according to JPMorgan strategist Julia Wang.
• Wang pointed to strong GDP and labor market data, which would bolster the economy as the Fed keeps hiking rates.

The Fed won't pivot from its path of interest rate hikes until the end of next year as inflation is persistent and the economy isn't slowing as expected, according to JPMorgan strategist Julia Wang.

That's contrary to the outlook of many experts in the market, who have warned this year that the Fed may be forced to pivot in order to avoid causing a recession. Despite inflation clocking in above expectations in September, Wharton professor Jeremy Siegel noted that inflation was likely being overstated in the official statistics, and some sectors of the economy, like housing, have been deteriorating in response to rising interest rates.

But a pivot is unlikely in the near term, given the underlying resilience of the US economy, Wang said in an interview with Bloomberg on Thursday.

"The weakness in the economy isn't really as big or coming as fast as people have expected. I think a lot of indicators on the consumer side actually are still pretty resilient," she said, pointing to the recent upside in GDP numbers, which clocked in above expectations on Thursday.

Wang also pointed to the fact that while housing prices have started to fall, the core Personal Consumption Expenditures index won't show signs of easing for the next few months, which suggests the momentum of inflation is still strong. Core inflation is also still accelerating at 6.6%, according to the September CPI report, leading top economist Mohamed El-Erian to warn that the US still faces an "inflation issue" and stopping rate hikes now could result in stagflation.

The labor market also remains hot, another factor that's influencing the Fed's outlook on rate increases. While job openings have come down slightly, the unemployment rate inched lower in September and hiring is still robust. That will likely encourage the Fed to keep tightening until the labor market shows more signs of slowing down, Bank of America analysts said.

"For us to get to a point where labor market conditions are more fundamentally consistent with the Fed's inflation target, we think will probably take us to end of next year. So hence, that's why we expect a pivot really only in Q4 2023," Wang added.

Her prediction could dampen morale for some investors, who have had a burst of renewed hope for a Fed pivot or a pause in Fed rate hikes to deliver them from a difficult bear market. Most economists see the central bank delivering a 75 basis point rate hike at the Federal Open Market Committee meeting next Wednesday, following by a 50 basis point increase at the December FOMC meeting.