12 Dec

US CPI: markets are overly confident of Fed pivot

December 12, 2023

By George Prior 

Markets appear to be overly confident of a policy pivot by the Federal Reserve, warns the CEO of one of the world’s largest independent financial advisory, asset management and fintech organizations.

The warning from Nigel Green of deVere Group comes as the inflation in the US is published by the US Bureau of Labor Statistics.

He says: “Inflation remains sticky. The Fed will not want to take the risk of pivoting on policy too soon by cutting rates.

“We believe that the data is still not strong enough for the central bank of the world’s largest economy to commit to reversing its most aggressive tightening campaign in decades – yet the markets seem read to confidently and heavily price-in rate cuts.

“Therefore, we could see a market rally as the year ends, but we think this could be overly optimistic.

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“It can be expected that the Fed will leave the US interest rate unchanged at the 5.25%-5.5% range tomorrow (Wednesday) following the last monetary policy meeting of the year.

“But, so far, there’s no pivot in sight.”

The deVere CEO continues: “Inflation is still turning out to be stickier than expected. We expect that markets are pricing-in cuts too quickly. It will be next year before we really know.

“Certainly, some stock surges – such as those which are AI-orientated – are reasonable. Yet many others are getting ahead of themselves.”

The deVere CEO goes on to add that investors should diversify across asset classes to spread risk and capture opportunities arising from different market conditions; and to consider alternative investments that may provide returns less correlated with traditional asset classes.

He concludes: “Will the Fed really pivot with inflation stubborn? We think not.

“Yet markets seem to be getting carried away that the Fed and its peers of major central banks are ready to pivot.

“Significant opportunities remain, but investors should avoid complacency.”

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.


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