The Fed will issue its final big rate hike next month before pivoting as inflation cools, setting stocks up to rally through year-end, JPMorgan says

The Federal Reserve is expected to raise its interest rate next month.

The Fed will raise rates by 75 basis points when it meets in late September, according to an analyst.

That would market the third rate hike in a row where the Fed raised rates by 75 basis points, and it would bring the effective Fed funds rate to above 3% for the first time since the beginning of 2008.

The Fed chairman is expected to be more flexible in future moves after September's likely interest rate hike.

The chances are that Fed becomes more sensitive to incoming dataflow now that Fed funds rate has moved above what is traditionally seen as a neutral level.

With home prices cooling down, gasoline prices down considerably from their recent peak, and key agricultural prices like wheat seeing steep declines, there's a good chance the Fed will slow down their future rate hikes.

Our economists think that inflation will move lower. The year-over-year inflation of the US will fall from its recent peak of above 8% to just 3% by July 2023, according to a new forecast by JP Morgan.

There is a strong correlation between inflation forwards and the price of oil. We expect another Fed hike in September, but we want the Fed not to surprise the markets again.

That would be good news for growth stocks relative to value stocks, and it should help the stock market to recover from its mid-June low. The S&P 500 is expected to end the year at 4,800, representing a potential upside of 15%.