Despite the Federal Reserve’s decision to reduce the size of interest rate hikes, inflation will remain a major headwind well into next year, warns the CEO and founder of one of the world’s largest independent financial advisory, asset management and fintech organizations.
Nigel Green of deVere Group’s warning comes as the U.S. central bank’s rate-setting Federal Open Market Committee voted to boost the rate half a percentage point, taking it to a targeted range between 4.25% and 4.5%.
The Federal Reserve signalled that it sees the terminal rate at 5.1%.
“The inflation data received so far for October and November shows a welcome reduction in the monthly pace of price increases. But it will take substantially more evidence to give confidence that inflation is on a sustained downward path,” said Fed Chair Jerome Powell.
Nigel Green says: “Driven by cooler-than-anticipated inflation data on Tuesday – after which all three Wall Street indexes closed higher – and after four straight three-quarter percentage point hikes, we finally get a smaller bump: half a percentage point.
“This is the seventh and final hike of the year, and it appears that the Fed is cautiously winding down its hiking program.
He continues: “The most eagerly awaited part of the event was the press conference with investors keen to judge Fed Chair Jerome Powell’s words to see if there was guidance about the central bank outlook being more hawkish or dovish.
“It was clear that Powell is still concerned about inflation and, therefore, is keen to talk down expectations.
“We may have seen, or be seeing, peak inflation, but clearly, inflation will still be an issue for well into next year.”
As such, investors should take a look at stocks that are likely to be recession-resistant. For example, people will still need food, energy and financial services during a downturn. These sectors should do well.
“Although it is likely that investors will be seeking to increase exposure to growth stocks towards the end of 2023 as cost of living eases and global growth picks up pace, it’s important that they don’t get ahead of the market right now,” adds the deVere CEO.
He concludes: “More favourable market conditions are coming in 2023, and the Fed’s latest decision on rates supports this. But inflation remains the major headwind for investors into next year.”