The US Federal Reserve must now stop interest rate hikes due to the “notorious time lag” of monetary policy, warns the CEO of one of the world’s largest independent financial advisory, asset managers and fintech organizations.
The warning from deVere Group’s Nigel Green comes as the US central bank’s Chair Jerome Powell on Wednesday announced after a meeting of the FOMC (Federal Open Market Committee) – the branch of the Fed responsible for implementing monetary policy – that it would skip raising rates this month, as was widely anticipated, but will resume after this pause.
The Fed Finally Puts A Pause On Rate Hikes But Not For Long
He says: “After a painful 15 months and 10 consecutive rate increases into its battle to cool red-hot inflation, the Fed has confirmed what markets had expected: that it is not raising rates this month in the world’s largest economy right now.
“This clearly indicates that the fight to combat soaring prices is, finally, being won.
“This is good news for households, businesses and those financial assets hit by the most aggressive monetary policy since the 1980s.”
However, the Fed isn’t done with raising rates at this point.
“This pause is just a ‘skip’, as we expected.
“Both core and headline inflation are coming down, but core is still pretty high. The target of 2% is still way off. And the Fed is obsessing over the tightness of the labor market as, despite the 15-month-long inflation battle, unemployment is still near record lows.
“As such, I wouldn’t be surprised at all if rates were hiked to 6% by the end of 2023.”
As the Federal Reserve will resume rate hikes this year, Nigel Green is issuing a warning to the US central bank.
“The battle against inflation is being won. This is now the time for the Fed to stop – not pause – interest rate hikes.
He says: “The time lag for monetary policies is notoriously long.
“It typically takes about 18 months to two years for the full effect of rate hikes to filter fully into the economy.
“We’re now beginning to see the drag effects on the world’s largest economy with households and businesses becoming considerably more cautious.”
He continues: “Investors are increasingly concerned that with more hikes the Federal Reserve could steer the US economy into a major recession.
“Of course, the central bank will argue it needs to continue with rate rises to bring inflation back to target.
“But it must also ensure that the tight labor market doesn’t overshadow the broader picture and continue to overdo the hikes, which would make a US recession deeper and longer.
“As the world’s largest economy, this would clearly have a serious, negative impact on the global economy.”
He concludes: “The case for stopping rate hikes is compelling.”
About deVere Group
deVere Group is one of the world’s largest independent advisors of specialist global financial solutions to international, local mass affluent, and high-net-worth clients. It has a network of more than 70 offices across the world, over 80,000 clients and $12bn under advisement.
