JPMorgan's chief economist, Michael Feroli, signaled that inflation is moving in the wrong direction, undermining expectations for near-term Federal Reserve rate cuts. The shift pressures bond yields and equity markets while strengthening the U.S. dollar.
- Core PCE inflation rose to 3.2% yoy in February, above the Fed's 2.5% target
- Services CPI increased 4.1% yoy, indicating persistent inflation in non-traded sectors
- 10-year Treasury yield climbed to 4.87%, reflecting higher rate expectations
- ZB=F futures dropped 1.4% amid bond market repricing
- VIX surged to 18.9, signaling elevated market volatility
- CL=F crude oil futures gained 3.6% to $87.40 per barrel, driven by inflation concerns
JPMorgan’s Michael Feroli has raised concerns over recent inflation trends, stating that price pressures are not aligning with the disinflation narrative expected by markets. His comments, based on a reassessment of core CPI and PCE data, suggest that underlying inflationary momentum remains stubborn, particularly in services and shelter categories. This development casts doubt on the Federal Reserve's anticipated pivot toward rate cuts later in 2026. Key indicators highlight the concern: the core PCE price index rose 3.2% year-over-year in February, above the Fed’s 2.5% target, while the services component of the CPI climbed 4.1% annually. These figures contradict earlier signs of cooling and suggest inflation is not progressing toward the Fed’s objective at the desired pace. The persistence of wage pressures and sticky services inflation are cited as primary drivers. Market reaction followed swiftly. The 10-year U.S. Treasury yield climbed to 4.87%, its highest level since late 2023, while the ZB=F (10-year Treasury bond futures) dropped 1.4% in intraday trading. The VIX, or 'fear index,' spiked to 18.9, indicating increased volatility and investor anxiety over prolonged higher rates. Meanwhile, crude oil futures (CL=F) surged 3.6% to $87.40 per barrel, reflecting inflationary pressures in energy markets and broader commodity inflation concerns. The implications are significant for financial markets. A delayed or reversed Fed policy shift increases the risk of higher-for-longer interest rates, which weighs on equities—especially growth stocks—while supporting the U.S. dollar. Bond investors face re-pricing risk, and fixed-income portfolios may see renewed losses. Financial institutions, particularly those with large interest-rate-sensitive balance sheets, are also exposed to margin compression.