Notes on the Week Ahead

Dr. David Kelly

Listen to the latest insights from Dr. David Kelly, Chief Global Strategist at J.P. Morgan Asset Management to help prepare you for the week ahead.

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#354
Monday · 12 min
The PCE-CPI Gap and the Outlook for Further Fed Tightening
On balance, I don’t believe that the Federal Reserve should have raised interest rates last week. However, I must confess that there was one reference in Chairman Warsh’s press conference that left me distinctly uneasy. He noted that year-over-year inflation rates, as measured by the core personal consumption expenditure (PCE) deflator and the core consumer price index (CPI) were running at about 3.2% and 2.4% respectively.
#353
September 14 · 10 min
The Fed Paints itself into a Rate-Hiking Corner
In the Broadway musical, Fiddler on the Roof, Tevye, the well-meaning patriarch of a poor family, has to make some tough choices in a complicated time. Tevye, (who always reminded me of my father-in-law, Bill), has trouble deciding and three times during the play the music comes to a halt as he wanders through a long soliloquy of “on the other hand’s”. The Federal Reserve also has a tough choice to make in a complicated time. We now believe that they will raise rates this week. However, it is important to understand the logical twists and turns needed to reach that conclusion in order to trace out a potential path forward for the economy, interest rates and asset class returns. To bring some structure to the argument, the issues can be divided into three sections: the economy, the FOMC itself and the importance of Fed credibility.
#352
September 8 · 12 min
The New, New Normal
The era of low growth, low inflation and super-low interest rates that followed the Great Financial Crisis was christened by Mohamed El-Erian as “The New Normal”. While this episode largely came to an end with the post-pandemic growth and inflation surge, real interest rates had generally remained below the levels that prevailed in the decades before the financial crisis until recently. However, a steady bond market selloff in 2026, which accelerated over the summer, has now pushed real long-term Treasury yields to their highest levels since 2010.
#351
August 31 · 10 min
Labor Market Mysteries
In a generally upbeat Jackson Hole speech on Friday, Fed Chairman Kevin Warsh asserted that “labor markets are consistent with full employment”. Given that the current unemployment rate, at 4.1%, is the lowest it’s been in 18 months and is also lower than it has been 88% of the time over the past 50 years, it is hard to argue with the Chairman’s assessment.
#350
August 25 · 14 min
The Road to $40 Trillion
Money was tight in our early married years. We bought a house we couldn’t afford, purchased a car we couldn’t afford and had all the expenses attendant on the raising of two young boys. However, as we wandered the local mall gazing at all the other things we couldn’t afford, we were always willing to stop into Godiva to get chocolate squares. Godiva was, of course, more expensive than Hershey bars. But no one was going to go broke buying chocolate squares – it just wasn’t a big enough item to feature in our budgetary woes.
#349
August 10 · 13 min
What Lies Beneath: An Updated Outlook on the Economy and Investing
The summer of 2026 has been dominated by the AI boom. Some fear that AI is advancing too quickly for thoughtful regulation. Others worry that end-user revenues will lag too far behind massive capital spending and fast-growing debt. From an economic perspective, AI is pure momentum, generating huge profit gains, adding to investment spending, boosting upper-income consumer spending via a wealth effect and coinciding with very solid gains in productivity.
#348
July 27 · 15 min
The People versus Inflation
No one liked the defendant. That much was clear. But when the jury retired to consider their verdict, they hardly knew where to start. The case was so confusing and the judge’s instructions hardly seemed adequate. “Perhaps”, suggested the foreman, “we should start with a list of questions…”
#347
July 20 · 15 min
A Top Down View of the Earnings Surge
The earnings season has started with a blast. As of Friday morning, 49 of the S&P500 companies had reported second-quarter earnings, with 85% beating expectations and the index on track for a blockbuster 23% year-over-year gain for the quarter. According to FactSet, analysts now expect S&P500 operating earnings to reach $340.74 for 2026 as a whole, up 24% from 2025, following strong back-to-back gains of 10% and 13% in 2024 and 2025 respectively.
#346
July 13 · 15 min
The Fed Communications Debate: Bernanke Versus Warsh
Alan Greenspan, who served as Fed Chairman for almost 20 years, died last month at the age of 100. He was a talented and faithful public servant who guided U.S. monetary policy through the stock market crash of 1987, the boom years of the 1990s and the dot-com bubble. He was thoughtful and witty in his public comments. However, he seemed to regard a lack of clarity as almost a virtue. He inherited a Fed that had always been reticent to communicate and he largely maintained that cloak of secrecy.
#345
July 6 · 12 min
Consumer Sentiment and the Stock Market
Despite very average economic performance, consumer sentiment remains at extraordinarily low levels. While there are many interesting aspects to this phenomenon, one is of particular relevance to investors. As we show on page 32 of the Guide to the Markets, peaks and troughs in consumer sentiment have, for many years, been powerful contra-indicators of stock market performance over the subsequent 12 months. However, does this relationship still hold, if the reason for weak sentiment is beyond the realm of a rational assessment of broad economic conditions?
#344
June 29 · 12 min
The Healing of Housing
In the pantheon of running injuries, there is a well-established hierarchy. A recreational runner, finishing any marathon, or exerting themselves at half that distance, can expect to come down with delayed onset muscle soreness, otherwise known as DOMS. Starting from barely a twinge at the finish line, the pain rises in intensity over the next few days, with your quads telling you firmly that your running days are over. But then it fades and a week later you should be running like a spring lamb again.
#343
June 22 · 10 min
The MOU and Warsh: A Changing Macro Landscape
Last week, as a frothy stock market continued to zigzag across a high plateau, two events occurred with significant implications for the macroeconomic outlook. First, the President signed a Memorandum of Understanding with Iran, potentially bringing the Iran war to a close. Second, Kevin Warsh presided over his first meeting as Fed Chairman, resulting in a slightly more hawkish tilt to monetary policy in the short run and the promise of significant reform in the long run.
#342
June 15 · 13 min
The Inflation Outlook and Fed Policy under New Leadership
Last Wednesday’s CPI report, while not a surprise, still showed a year-over-year inflation rate of 4.2% - higher than in any month since April, 2023. For investors, this raises a number of questions. First, is this the peak for U.S. inflation and, if it is, how fast will inflation fall from here? Second, are we looking at the right inflation rate, anyway, given differences between CPI and PCE deflators, headline and core measures and the new Fed Chairman’s preference for trimmed mean and median readings?
#341
June 1 · 13 min
Investing in a Divergent Economy
Two weeks ago, Sari and I took a vacation - an extended road trip down the East Coast as far as Charleston and then inland back to New York through the Appalachians. On a long driving stretch on the way back, we stopped at a Jersey Mike’s just off the highway for some much needed nourishment. As we were waiting to pay, a talkative man, in the height of good humor, was ordering behind us. I don’t know if he knew anyone working at the store, but he acted as if he did. He said he’d just got a job after five months searching and he was going to celebrate - by buying two big subs - one for that evening and another to put in the fridge for the next night.
#340
May 25 · 17 min
Five Scenarios for the Federal Debt
The Financial Accounts of the United States is a quarterly Federal Reserve publication containing a great many large numbers but very little commentary, presumably because the authors feel the numbers speak for themselves. And the numbers do speak rather loudly.
#339
May 4 · 14 min
Quarter Days and the Economic Outlook
In 19th century English novels, so-called “quarter days” often provided a chronological backdrop to the plot. A relic of medieval times, the quarter days were Lady Day (March 25th), Midsummer Day (June 24th), Michaelmas (September 29th) and Christmas Day (December 25th). These were the dates upon which rents were paid, leases expired and employment contracts took effect. Quarter days were often when the landlords of Austen expected their income, the impoverished families of Dickens had to cough up their rents and the farmworkers of Hardy would move on to their next place of employment. In short, they were days of accounting and reckoning.
#338
April 20 · 12 min
AI, Inflation and Interest Rates
On Tuesday, the Senate Banking Committee will hold hearings to consider the nomination of Kevin Warsh to be the next Fed chair. His confirmation will likely be delayed until the Justice Department’s investigation into Jerome Powell is fully resolved. Despite this, Mr. Warsh’s answers to the committee’s questions could shed light on the future direction of monetary policy.
#337
April 13 · 12 min
The Latest News and the Economic Outlook
Evening newspapers, like vinyl records and rotary phones, are fading relics, all victims of the smartphones into which humanity is gradually burying its consciousness. But once, they were a vibrant part of daily life. Growing up in Dublin in the 1970s and 1980s, there were two evening papers, the Evening Herald and the Evening Press. Sold at every street corner, they would distract commuters from the damp and discomfort of the tight-quartered, smoke-filled upstairs of double-decker buses.
#336
March 30 · 10 min
The Receding Tariff Tide
A year ago this week, the President announced what he described as “reciprocal tariffs” on goods imported from all major U.S. trading partners. These tariffs, which were much broader and higher than expected, led to an immediate and sharp decline in stock prices.
#335
March 24 · 13 min
The Investment Implications of Shrinking the Fed’s Balance Sheet
In a speech last April, Fed Chair Nominee, Kevin Warsh, lamented the mission creep of the Federal Reserve as well as the Fed’s expanded balance sheet. Many academics agree with Warsh – the Fed has often tried to address problems that are not within its remit and with tools not suited to their purpose. Some of these endeavors have inflated the balance sheet which, rather like a Swiss army knife, is a tool used for many tasks, none of which it does particularly well.

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