(June 7): Central banks will be more hamstrung about how much they can do to boost growth if inflation remains sticky, according to JPMorgan Asset Management.

Karen Ward, the firm’s chief markets strategist for EMEA, said investors were too optimistic to think central banks would cut interest rates to support growth. She’s betting they’ll have to keep rolling back those bets.

“One of the things I’m nervous about is that the rates market got a little bit too carried away about central banks being able to preemptively cut rates,” she said in an interview with Bloomberg TV. “Markets are already taking out some of those cuts and I think that story will continue.”

Stronger-than-expected US economic data has led investors in the past month to lose faith that the Federal Reserve will be cutting interest rates soon.

Just over a month ago, swap contracts linked to Fed meeting dates priced in a chance of a rate cut as soon as this month; now bets are for a pause in interest rates in June and a hike in July.

Increasingly, a handful of banks are coming to the view that there won’t be rate cuts soon. Goldman Sachs Group Inc and Barclays Plc are among the big banks advising customers that the Fed would likely be less aggressive in cutting rates. Some of the biggest European money managers, including Amundi SA and Pictet Asset Management SA, are also betting against the market’s view of easing coming soon.

Fed Chair Jerome Powell has long advised against wagering on interest-rate cuts, saying the inflation outlook didn’t support those. While they’ve pulled back on rate cut bets, swaps are still pricing easing toward the end of the year.

Meanwhile, Ward said that fading expectations of a rate cut will put mega-cap tech valuations at risk. For that reason, she said it’s worth reducing weight on the US and adding elsewhere to diversify portfolios.

The JPMorgan Asset Management strategist also said valuations in Europe have changed significantly since the pandemic and Russia’s war in Ukraine, making her the most optimistic she’s been on the region over the past decade.

As for China, officials, she said, will likely add stimulus to the economy, although they’d probably avoid boosting the property market or infrastructure given lingering concerns in those segments.

“I think they would very much be focused on the consumer — making sure that the consumer is their driving engine,” she said. “I suspect we will see stimulus, but it will be very different to the past.”