U.S. inflation lower than expected: Is the Fed playing with fire?
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 labor 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.
Midas Letter is provided as a source of information only, and is in no way to be construed as investment advice. James West, the author and publisher of the Midas Letter, is not authorized to provide investor advice, and provides this information only to readers who are interested in knowing what he is investing in and how he reaches such decisions.
Investing in emerging public companies involves a high degree of risk and investors in such companies could lose all their money. Always consult a duly accredited investment professional in your jurisdiction prior to making any investment decision.
Midas Letter occasionally accepts fees for advertising and sponsorship from public companies featured on this site. James West and/or Midas Letter may also receive compensation from companies affiliated with companies featured on this site. James West and/or Midas Letter also invests in companies on this site and so readers should view all information on this site as biased.