Federal Reserve

Expect four Fed rate hikes this year: JPMorgan Asset Management

Yellen will react to reality, expect four rate hikes in 2017: JPMAM

The U.S. Federal Reserve will raise interest rates not one, two, or three – but four times this year, argued Nick Gartside, international chief investment officer of fixed income at JPMorgan Asset Management on CNBC's Street Signs Europe.

Explaining his forecast, Gartside said that the U.S. economy is "on an improving trajectory; inflation (is going) higher."

Janet Yellen, the chair of the U.S. Federal Reserve, would "react to reality," he added.

Justifying his viewpoint, Gartside said that, "that sounds aggressive now, but remember that we've not yet seen the phenomenal tax plan that is yet to come," referring to new U.S. President Donald Trump's fiscal policy of reforming taxation in the country.

"Tax cuts work very quickly for both consumers, for corporations," he added, viewing the potential changes as positive for U.S. economic growth.

By way of suggesting when the first of this year's predicted rate hikes will be, Yellen "should keep March open – and if she's brave, she should go in March," said Gartside.

"When you look at GDP (gross domestic product) in the U.S. this year, the reality is that the risk is to the upside, and considerably to the upside," emphasized Gartside. "The market's not got that yet," he added.

With regards to U.S. debt, Gartside argued that "markets are dominated by animal spirits." "When we see the detail of those tax cuts, expect the greed bond to take over," he said. Discussing the U.S. 10-year bond yield, Gartside forecast that "by the end of the year, it probably (will go) to three and a half percent."

"If you've got an environment where the economy is improving, corporations are making more money, households have bigger incomes, they have tax cuts, then that debt service is able to financed," he said, describing the U.S. economy's potential for "a self-fulfilling recovery as you look forward."

"Probably before Easter time, we'll see markets really latch on to that," he added.

Gartside thought that tax reform would be the first factor to affect U.S. bond yields. But commenting on the implication of political risk in Europe and how this could impact the U.S., Gartside said that the "when you look at the recent history of electoral surprises, a – they tend to be pretty idiosyncratic and pretty localized, and then secondly, markets have shrugged them off."

He said that markets would be preoccupied with positive growth and inflation forecasts, and with "accommodative" central banks in Europe, "that's probably supportive for asset prices."

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