The Federal Reserve is likely to raise interest rates on Wednesday – despite data showing today a slowdown in inflation – and it could be “playing with fire” by doing so, warns the CEO and founder of one of the world’s largest independent financial advisory, asset management and fintech organizations.
The warning from Nigel Green of deVere Group comes as the latest U.S. inflation report shows that CPI for November came in at 7.1%, below expectations of 7.3%.
He says: “Tomorrow, [Wednesday] members of the U.S. central bank’s Federal Open Market Committee (FOMC) will reveal their decision on interest rates largely based on this data.
“We expect a seventh consecutive interest rate hike to be announced by Fed Chair Jerome Powell – despite the numbers showing that price growth continued to decline last month. It is likely to impose a half-percentage point hike, which is less than previous ones.”
He continues: “The central bank will argue it needs to continue with rate rises to bring inflation back to target.
“However, with signs of slower prices and a cooling labour market, they could be playing with fire.
“It’s a fine line that they have to tread. Housing inflation is keeping wider inflation high, but the Fed must ensure that this doesn’t overshadow the broader picture and continue to overdo the hikes, which would make a U.S. recession deeper and longer – and have a serious global impact.”
Ahead of the announcement by Jerome Powell on Wednesday, markets will be buoyed by the CPI data.
“Stocks will surge, and bond yields and the U.S. dollar will go lower on hopes that the Federal Reserve can be less aggressive in their battle against inflation,” says Nigel Green.
He concludes: “After the positive inflation data, investors will be hoping that the Fed doesn’t now dash the glimmer of hope for a soft economic landing.”