Has Inflation Peaked? JPM Sees May CPI Top, Expects Fed to Hold Steady

 

While Wednesday’s headline CPI print confirmed that US inflation has vaulted back into the 4% range for the first time in three years, structural relief may be on the horizon.

 

According to projections from a top JPMorgan strategist, the most grueling phase of the recent inflationary impulse has likely passed.

 

Following the release of the May inflation dashboard, David Kelly, Chief Global Strategist at JPMorgan Asset Management, forecast that the Federal Reserve will view the print as elevated but not yet alarming.

 

Consequently, policy architects are widely expected to maintain the status quo and hold interest rates steady at next week's FOMC meeting.

 

Fueled by the war with Iran, which has systematically squeezed global energy corridors, the US Consumer Price Index (CPI) accelerated 4.2% year-over-year in May.

 

This marked its first break above the 4% threshold in three years and its fastest expansion since May 2023, effectively outstripping domestic wage growth. Crucially, however, core CPI—which strips out volatile food and energy inputs—ticked up a modest 0.2% month-over-month, coming in below consensus estimates.

 

Kelly noted that while the headline metrics will undoubtedly leave central bankers "somewhat uncomfortable," they are highly likely to mark the cyclical peak for inflation.

 

"Mechanically, we are looking at a unanimous 12-to-0 vote to do absolutely nothing," Kelly stated during a media appearance Wednesday. "Inflation is indisputably higher than their comfort zone. However, I believe there is a very high mathematical probability that May will mark the high-water mark for inflation in this current cycle."

 

To back his thesis, Kelly pointed out that retail US gasoline prices have already retreated 9% from their May 20 peak, offering tangible evidence that underlying cost pressures are beginning to thaw.

 

Interest rate futures indicate that traders see virtually zero probability of a policy adjustment at the conclusion of next week's two-day议息会议, which will notably mark the maiden policy meeting chaired by newly appointed Federal Reserve Chairman Kevin Warsh.

 

Even so, as the US-Iran conflict continues to destabilize oil and gas markets, the cumulative probability of a rate hike before year-end has climbed to near 100%.

 

This marks a dramatic hawkish recalibration from late February—prior to the outbreak of hostilities—when rates desks were fully pricing in at least two rate cuts by December.

 

"Printing a 4-handle on inflation is visually jarring," Kelly conceded, referencing a headline year-over-year CPI metric that is tracking at more than double the Fed's symmetric target.

 

"There is absolutely no fundamental justification to ease monetary policy right now." Nevertheless, he emphasized that the Fed retains the luxury of time to remain in watch-and-wait mode.