The Federal Reserve’s decision to hold interest rates days before the midterms is a dangerous gamble with inflation, warns the CEO of deVere Group, one of the world’s largest independent financial advisory organisations.
The comments from Nigel Green come as the Fed holds rates at 3.75% to 4%, with inflation at 3.7% and voters heading to the polls on November 3.
He says: “Prices are rising at almost twice the Fed’s target, and it’s chosen to sit on its hands.
“We’ve been here before, and it ended badly.
“We believe the Fed will likely have to hike again before the year is out anyway. So why wait it out?
“Stalling for the midterms, which is what has happened, we assume, makes no sense when the world’s largest economy is on the line.”
In 2021 the Fed insisted inflation was transitory and kept rates at rock bottom. By the time it finally moved in March 2022, prices were already rising at close to 8%.
Three months later inflation hit 9.1%, a 40-year high. What followed was brutal: four straight hikes of 0.75 percentage points, and rates above 5% by mid-2023.
“The Fed was asleep at the wheel, and families paid for it at the checkout, at the pump and on their mortgages,” comments Nigel Green.
“It took two painful years to rebuild credibility. Throwing that away somehow seems reckless.”
The warning signs are flashing again. The Fed has missed its 2% target for more than five years.
Consumer prices jumped 0.6% in September alone. Core PCE, the Fed’s favoured measure, is heading towards 3.1%. Americans’ fears about prices over the coming year are at their highest since May 2023.
“Energy, tariffs, and the AI building boom are all pushing prices the same way,” he says. “None of it is going away by itself.”
There’s no jobs crisis to hide behind either. Unemployment has held steady at around 4.2% for a year.
“The labour market is solid and inflation is too high. Those are textbook conditions for a hike,” says the deVere CEO.
“If raising rates was right in September, it’s right today. The only thing that’s changed is how close we are to an election.”
Bond markets are losing patience. The 10-year Treasury yield is hovering near 5% after hitting its highest level since 2002 this month, while the average 30-year mortgage rate is close to 7.4%.
“If the Fed won’t tighten, bond investors will do it for them, and they’re far less gentle,” he says.
The timing could hardly be worse, with the White House again trying to oust Fed Governor Lisa Cook despite an earlier Supreme Court setback.
“Independence is everything for a central bank,” says Nigel Green. “Any decision that looks political chips away at it, whatever the motive.”
He concludes: “Kevin Warsh talks tough on inflation. But after the pause, December is now when he has to prove it.
“A firm move then would likely restore confidence fast, and this week’s wobble would soon be forgotten.”
