JPMorgan Asset Management's chief strategist wants the Federal Reserve to do something central bankers rarely receive praise for: staying put.

David Kelly, Chief Global Strategist at JPMorgan Asset Management, said in an August 12 Bloomberg Television interview that following the July Consumer Price Index (CPI) release, the Fed should maintain interest rates unchanged. His reasoning is straightforward: core inflation is cooling, and the best course of action is to let this trend develop naturally without intervention.

Reasons for keeping rates unchanged

Kelly was direct in expressing his view on policy direction. "They absolutely should keep rates unchanged, and I believe they will indeed do so," he stated during the interview, expressing confidence the central bank will resist pressure to either raise or cut rates. He described the current inflation environment as "Teflon-like inflation," a vivid term suggesting price pressures can no longer persist as they once did.

The July CPI data reinforced his view: core inflation figures were moderate, pushing U.S. Treasury yields higher, while the bond market priced in more dovish policy expectations. Kelly has not held this view recently. Back in June, he argued that with inflation data peaking, the Fed's wisest move was to hold its current rate policy steady. Two months on, various data points seem to support his assessment.

Actual signals from the data

The July CPI data is a key pillar of Kelly's argument. Core inflation, excluding volatile food and energy prices, was moderate, further indicating that the worst phase of post-pandemic price surges has definitively passed. The Treasury market also responded accordingly. When core inflation data came in below expectations, investors bet the Fed would not need to further tighten monetary policy, often leading to rising bond prices. This was the case, as U.S. Treasury prices rallied following the report.

Kelly predicts the Fed will keep interest rates unchanged at least through the end of 2026.