Fed rate cuts unlikely as inflation lingers above target, says deVere

Investing.com -- The Federal Reserve is not expected to lower interest rates in the near future due to inflation persistently exceeding the central bank’s 2% target, states deVere Group, a prominent independent financial advisory and asset management organization.

The core Personal Consumption Expenditures (PCE) index, the Fed’s favored inflation measure, increased 2.8% year-over-year in December, with the main rate rising 2.6%. These figures met expectations, but they underscore a troubling fact: the expected disinflationary trend that markets were counting on has stalled.

Nigel Green, CEO of deVere Group, says, "The data is clear: inflation is proving more persistent than many had hoped." He adds, "This should quell the notion of imminent rate cuts. The Fed will be extremely cautious about easing monetary policy prematurely, particularly after years of striving to regain control of inflation."

The latest inflation data strengthens the argument for the Federal Reserve’s recent decision to delay rate cuts. In their January meeting, policymakers recognized that price pressures were receding from post-pandemic highs but indicated that they are not yet ready to start reducing borrowing costs.

Markets have been strongly factoring in multiple rate cuts in 2024, with some investors even predicting an initial move as early as March. However, deVere Group has consistently argued that such expectations are too early.

"The Fed is not in a hurry," Green continues. "They’re acutely aware that lowering rates too soon could rekindle inflation, which might reverse all the progress achieved so far. The central bank will require much more compelling evidence that inflation is on a sustained downward path before taking action."

The possibility of sustained higher interest rates has substantial implications for investors. If borrowing costs continue to be high, growth stocks, especially in the technology sector, may encounter resistance.

Yet, Green remains optimistic about specific opportunities: "Markets have been overly relaxed about rate cut expectations, but this generates opportunities for shrewd investors. We perceive value in high-quality equities with robust earnings potential and defensive positioning. Investors should also consider global diversification strategies to protect against potential US dollar strength."

As inflation continues to surpass the target, and with the Fed unlikely to adjust rates soon, deVere Group encourages investors to reevaluate their portfolios accordingly.

"The ultimate point is that rates are probably staying higher for a longer period than many anticipated," Green concludes. "Investors should brace for this reality rather than gamble on a central bank shift that doesn’t appear to be imminent."

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