A Federal Reserve interest rate hike is now more likely than a cut at the central bank’s next meeting, says Nigel Green, CEO of global financial advisory giant deVere Group.
The comments come as US CPI eased to 3.5% in the 12 months to June, down from May’s 4.2%, while core inflation, which strips out food and energy, held near 2.9%, extending a run of increases since March.
He says: “Investors treating today’s headline as a clear signal that rate cuts are back on the table may be getting ahead of themselves.
“This is backward-looking data. The energy price decline behind June’s improvement was tied to a Middle East ceasefire that has since broken down.
“Fresh airstrikes and renewed tension around the Strait of Hormuz suggest oil could climb again in the months ahead.
“One month of relief at the pump doesn’t necessarily reflect where the broader trend is heading.”
The CEO continues: “Core inflation is the number the Fed tends to weigh most heavily, and it has been drifting higher for several months now.
“This makes it harder for officials to justify an early pivot, even with a softer headline print. A hold, or even a hike, looks more probable than a cut from here, though nothing is guaranteed given how quickly the geopolitical backdrop is shifting.”
He says investor expectations have already shifted meaningfully this year.
“At the start of the year, markets were pricing a series of rate cuts. This narrative has come under real pressure.
“Investors are increasingly having to weigh the possibility that the next move could be up rather than down, even if that remains one scenario among several.”
Nigel Green believes the case for a more cautious Fed is building.
“The labour market has stayed resilient and growth has held up reasonably well. Neither condition that would typically justify easing has clearly been met yet.
“Patience looks like the more defensible stance for now, with the door still open to further tightening if inflation proves stickier than hoped.”
He concludes: “Every inflation report from here carries added weight, given how finely balanced the outlook is.
“Investors would be wise to prepare for a US central bank that stays cautious for longer, rather than assuming a return to easing is imminent.”
