US CPI: Fed likely to prepare for another interest rate hike

The Federal Reserve will hold interest rates steady in September before hiking them again next time, predicts the CEO and founder of one of the world’s largest independent financial advisory, asset management and fintech organisations.

The prediction from Nigel Green of deVere Group comes as the Consumer Price Index (CPI) in the US jumped 3.7% year on year in August, up from the 3.2% increase recorded in July.

The Core CPI figure was 4.3% in the same period, down from a 4.7% growth in July.

He says: “inflation heated up again last month in the world’s largest economy, driven mainly by rising oil costs. The core measure, which strips away volatile food and energy prices, cooled on an annual basis.

“This latest US CPI data is unlikely to move the needle on the Fed’s highly anticipated move to hold rates steady at their meeting next week – which has already been priced-in by financial markets.

“But the uptick in inflation gives the US central bank extra reason to be hawkish moving forward. As such, we also expect the Fed will start to prepare the market for a rate increase at its November meeting.”

The deVere CEO goes on to add that he believes this is the time for the Fed to stop, not pause, rate hikes.

“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. In addition, investors are becoming more and more concerned that additional hikes could steer the US economy into a recession.”

He concludes: “The battle against inflation is being won – but battles like this are never won in a totally straight line – they go up and down incrementally, but the trajectory is clearly favourable, and the case for stopping rate hikes is compelling.

“The effects of previous Fed actions haven’t come through fully, but they will, and an increase could cause years of damage.”

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