NEW YORK - In a newly released projection, Nigel Green, CEO and Founder of deVere Group, one of the world's leading independent financial advisory organizations, anticipates that the Federal Reserve will implement just one interest rate cut this year, likely in the third quarter, with no further cuts until at least January 2025. This forecast comes as U.S. Consumer Price Index (CPI) inflation data continues to exceed expectations for the third consecutive month.
According to the latest figures, both headline and core CPI have risen by 0.4%, with annual rates now at 3.2% and 3.8%, respectively. These inflation rates remain significantly above the Federal Reserve's target of 2%. This persistent inflationary pressure has led to a shift in expectations from the early 2024 market predictions of five to six rate cuts, a view that deVere had cautioned against as overly optimistic.
Green highlighted that while there has been some progress in reducing inflation from multi-decade highs, the decline has been gradual since the Fed ceased its rate hikes. He pointed out that the core CPI, which is often considered a more accurate measure of long-term inflation trends, has only decreased by about one percentage point. Furthermore, a robust jobs report last Friday has added complexity to the Federal Reserve's decision-making process.
With the central bank likely to require more convincing evidence of sustained inflation reduction over several months, Green believes that a rate cut will not occur until later this year, followed by a pause to evaluate the effects on the U.S. economy. Consequently, the next rate reduction after the third quarter is not expected until January 2025 or later.
This outlook suggests that interest rates may remain higher for a more extended period than initially anticipated by the markets. Green advises investors to reconsider their strategies in response to this environment. He suggests that fixed-income investments, like bonds, may face lower prices and potential capital losses. Investors may need to review their portfolios, potentially shifting towards shorter-duration bonds or bond funds, which are generally less impacted by interest rate changes.
Additionally, Green sees potential in alternative investments such as real estate, certain cryptocurrencies, commodities, and private equity. He also recommends focusing on high-quality stocks with strong financials, stable earnings growth, and competitive advantages, as well as dividend-paying stocks, which can offer income in a rising rate environment.
Green emphasizes the importance of a disciplined investment approach and portfolio diversification across various asset classes and regions to mitigate risk and improve long-term returns. He notes that consulting with an advisor to tailor an investment strategy that aligns with individual goals, risk tolerance, and time horizon is crucial, especially considering the current interest rate climate.
This analysis is based on a press release statement from deVere Group.
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