Fed cornered by inflation and growth concerns: deVere CEO

Investing.com -- Stagflation, a condition of slow economic growth and relatively high unemployment accompanied by rising prices, or inflation, is becoming a reality, according to Nigel Green, CEO of deVere Group, a major independent financial advisory and asset management organization. Green suggests that the Federal Reserve is backed into a corner, with President Trump and the bond market dictating the pace.

The inflation report for March initially appeared to indicate progress, with the Fed’s preferred measure, the PCE index, showing an annual increase of 2.3%, down from 2.7% in February. However, the core inflation rate, which excludes the impact of fluctuating food and energy prices, remained at 2.6%. Monthly price growth remained flat, largely due to falling energy prices, rather than a strength in disinflation.

Green characterized the situation as one of "paralysis" rather than progress. He pointed out that the Fed is in a difficult position, with price pressures remaining high while the economy shows signs of fatigue. In his view, there’s no credible path to rate cuts in this environment.

Energy costs dropped by 2.7% in March as concerns over global growth led to lower oil prices. This decrease largely explains the softness in the headline inflation figure. However, food prices surged by 0.5%, the steepest monthly rise in months, indicating that key areas of consumer pressure are still very much present.

Consumer spending rebounded by 0.7% in March, up from just 0.1% in February. Rather than indicating resilience, Green suggests this sudden increase is likely due to front-loaded buying, driven by concerns over tariffs and higher short-term costs. He describes this as "pressure spending" rather than a confident boom.

Green argues that the Fed is running out of time and room to maneuver. He believes the narrative of a soft landing – inflation under control while maintaining economic stability – is now unraveling. Persistent price stickiness and weakening real activity are evident in the data.

President Trump’s reassertion of control in Washington has also changed the Fed’s strategic landscape. His policies, which include sweeping tariff proposals, aggressive fiscal ambitions, and open discussion of central bank reform, are inflationary by design. Green believes that the Fed now has to consider not just the economy, but the political shadow being cast across financial markets.

In this stagflation environment, bonds are no longer a safe hedge, equities are facing valuation pressure, and currency volatility is increasing. Portfolios that were built with rate-cut optimism are now exposed. Green suggests that allocations must shift to reflect this new regime, favoring global exposure, real assets, and selective sectors that can withstand persistent inflation and weaker top-line growth.

Green concludes by stating that the Fed isn’t leading, but reacting. He suggests that the tone is being set from the White House, not the central bank, and that monetary authority is no longer the dominant force in markets.

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