Federal Reserve policymakers will raise interest rates today, and Chair Jerome Powell will talk tough to intentionally spook the markets, predicts the CEO of one of the world’s largest financial advisory, asset management and fintech organisations.
The prediction from deVere Group’s Nigel Green comes ahead of the Fed’s latest interest rate policy decision and press conference planned for Wednesday afternoon (ET).
He comments: “Following a pause last time, we expect officials at the US central bank will raise rates again today, taking them to their highest level in 22 years.
“The FOMC, we believe, will raise rates .25, to the 5.25% to 5.5% range, which will be the eleventh hike since early 2022 as it continues its battle against inflation.”
The deVere CEO continues: “The markets have priced in a rate rise today. What investors will be focusing on is the press conference after the meeting as they look for any hints about future policy paths.
“We expect Chair Jerome Powell will talk tough at this meeting, warning the fight against inflation is not done, that CPI is still way off target, and how this damages the economy.
“He’s right, of course. But much of this will be ‘theatre’ in order to intentionally spook the markets.
“The war against inflation is being gradually won, but officials at the Fed will not want markets ‘to get ahead of themselves’, become complacent, and make their job of bringing down the rate of price growth harder.
“They’ll want to indicate that things are getting better, but on the other hand, they don’t want to suggest that they’re done with raising rates yet. It’s a fine line in communication.”
After the latest US CPI came in lighter than economists predicted earlier this month, the deVere CEO is urging the Fed not to raise interest rates past the one that is expected today.
“Investors are increasingly concerned that the Federal Reserve could, with further hikes, overtighten, and that could steer the US economy into a major recession. The central bank must maintain the broader picture, not focus on a narrow set of metrics.
“Overdoing the hikes could not only trigger a US recession but a global recession.
“The time lag for monetary policies is incredibly lengthy. It takes around 18 months for the full effect of rate hikes to make their way into the economy.
“We’re now starting to see the drag effects on the US economy with households and businesses becoming considerably more prudent.”
The Fed is expected to announce its July policy decision at 2 pm ET on Wednesday, followed by a 2.30 pm press conference with Chair Jerome Powell.
Ahead of the meeting and press conference, Nigel Green concludes: “We expect Chair Powell will do his best Tough Guy act in order not to let the markets rip higher.”