US inflation: The Fed isn’t done with rate hikes yet

By George Prior

The latest US inflation report suggests that the Federal Reserve will pause interest rate hikes tomorrow (Wednesday), but investors need to “stay grounded” as more rate rises are likely this year.

This is the warning from Nigel Green, the CEO and founder of deVere Group, one of the world’s largest independent financial advisory, asset management and fintech organizations, as the Bureau of Labour Statistics releases the US CPI data today showing that inflation rose at a 4% annual rate in May, which is the lowest in 2 years.

He says: “Tuesday’s report shows again that the prices rises, which have been hitting consumers, businesses and financial assets for two years, are decelerating.  The 12-month increase was the smallest since March 2021.

“It’s a feel-good headline figure that will cheer investors as it will add further pressure on the Fed to pause its interest rate hike agenda.

“The US central bank is now 15 months and 10 consecutive rate increases into its battle to cool red-hot inflation, but markets will be expecting that the latest CPI report will now be enough to convince officials to hit the pause button.”

The deVere CEO expects that other sectors which have “been outperformed so far in 2023” by mega-cap tech stocks are likely to get a boost should the Fed, as is anticipated, pause rate hikes this week following the CPI data.

“This will firmly signal that progress is being made in the battle to cool inflation and this will buoy investors across the board, finally providing a boost to sectors which have been unloved so far this year.”

As such, investors should be speaking to an advisor about the “possibility of an opportunity-packed new rally if the Fed, as is expected, pauses rate hikes this week.”

However, Nigel Green also issues a warning: “Investors need to stay grounded as despite a possible pause, more rate rises are likely this year, which would be a negative shock to stock markets.

“Inflation is certainly coming down so far, but it is very, very gradual. It remains sticky and a long way from the 2% target, largely due to a tight labor market.

“Therefore, investors need to brace for at least another interest rate hike this year, even if the Fed skips this one.”

Diversification remains investors’ best tool for long-term financial success. As a strategy it has been proven to reduce risk, smooth-out volatility, exploit differing market conditions, maximise long-term returns and protect against unforeseen external events.

“The likely market relief rally that is expected if the Fed pauses could provide important opportunities for investors, but they shouldn’t get overconfident that this is the end of the most aggressive monetary policy since the 1980s.

“The Fed isn’t done yet,” notes the deVere Group CEO.

About:

deVere Group is one of the world’s largest independent advisors of specialist global financial solutions to international, local mass affluent, and high-net-worth clients.  It has a network of more than 70 offices across the world, over 80,000 clients and $12bn under advisement.