(Bloomberg) -- The Federal Reserve risks pushing US consumers into a “dangerous” place if it ramps up interest rates yet again while inflation is already slowing, JPMorgan Asset Management’s David Kelly warned.

His warning came as bets on another Fed rate increase edged up Wednesday after the US service sector activity rose to a six-month high. 

“The Fed would be very unwise to raise rates again just because of a short-term spike in enthusiasm in the service sector,” the firm’s chief global strategist said on Bloomberg Television Wednesday. “A lot of the relationships that they relied on don’t really work. They are somewhat in unchartered territory here. I think there is a window for a soft landing.”

A slew of stronger-than-expected economic data in the past weeks have prompted many on Wall Street to shift their view that the Fed is indeed done with its aggressive monetary tightening campaign. The view comes against a backdrop of an American consumer that is resilient. To Kelly, this will eventually change.

“They should be very aware of the fact that there is a squeeze play going on with consumers. You now have got these higher oil prices, higher gasoline prices. You have got this resumption of student loans. People are having to deal with these higher mortgage rates,” he said. “There is a limit to that. So you are going to see consumer spending slow down.”

Read more: US Service Gauge Rises to Six-Month High, Topping All Forecasts

He also pointed out that a cooling labor market should give the central bank room to pause interest-rate increases. The latest nonfarm payrolls rose 187,000 after the prior two months were revised significantly lower.

“The real question is labor market because if you look at the three-month moving average of payroll jobs, it has been coming down and down and down,” he said, “It’s going to go to negative sometime early next year,” he added. “The moment we see two negative payroll reports, all bets are off because the Fed will realize ‘Oops, I guess we did push the economy into a recession. Sorry about that.’”

Fed officials will gather Sept. 19-20 and futures markets are pricing in almost no chance of a rate hike, leaving the federal funds rate between 5.25% to 5.5%. Meanwhile, swap contracts showed bets on a Fed hike in November rising to 60%. Thus far, the Fed has hiked 10 consecutive times before pausing in June only to resume again in July with a quarter-point rate increase.  

Fed Bank of Boston President Susan Collins said Wednesday that policymakers will need to be patient as they assess economic data to figure out their next steps, while former Fed Bank of St. Louis chief James Bullard noted Wednesday that officials should continue to pencil in one additional hike this year when they update their projections later this month.

Read more: Bullard Says Fed Should Stick to Its Plan for One More Rate Hike

For Kelly, the middle of a hiking cycle is the most perilous part of the tightening process.

“If you tell me that the Fed has just cut rates and they may cut rates down the road, are you going to borrow money today? No. You are going to wait,” he said, adding that it will “freeze” the economy. “The most dangerous time for the economy is when the Federal Reserve puts in a little bit of a rate cut and says more is coming.”

US stocks slipped on Wednesday with the S&P 500 closing below 4,500 and the Nasdaq 100 falling almost 1% as Treasury yields climbed. Two-year yields topped 5% as the dollar edged higher.

--With assistance from Katie Greifeld.

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