US CPI: NO Fed pivot in sight, markets got ahead of themselves

Following the release of the latest US CPI data, there’s no Federal Reserve pivot on interest rates in sight, and the markets have got ahead of themselves, warns the CEO of one of the world’s largest independent financial advisory, asset management and fintech organisations.

The warning from deVere Group’s Nigel Green comes as the US consumer price index is reported to have risen 0.3% in the final month of 2023, or 3.4% for the full year. 

Core inflation, which strips out the volatile food and energy components, slowed to 3.9% in December from 4% the prior month.

He says: “The progress on inflation is now slow and incremental.

“We believe that there’s still not enough evidence for the central bank to start cutting rates.

“With inflation remaining sticky, we expect rates will be higher for longer. We don’t see a policy pivot in sight.

“But in recent months, markets have been exuberant and got carried away with the idea that the Fed – and its major central bank peers- will start rolling out rate cuts in 2024.

“The markets have been pricing-in these cuts too quickly.

“There’s a reality chasm between what the Fed has signalling regarding rate cuts and what the markets are expecting.

“Certainly, some stock surges – such as those which are AI-orientated – are reasonable. Yet many others have been getting ahead of themselves.”

The deVere CEO goes on to add that investors should diversify across asset classes to spread risk and capture opportunities arising from different market conditions and to consider alternative investments that may provide returns less correlated with traditional asset classes.

He concludes: “Thursday’s US inflation data represents a serious challenge the markets expectations for big, imminent Fed rate cuts.

“Core CPI remains roughly double the Fed’s long-term target. Meanwhile, while headline inflation jumped more than expected.

“The market is setting itself up for disappointment by pricing-in 5 or so rate cuts this year.

“There remain considerable opportunities remain for building long-term wealth, but investors should avoid being swept away with current market overconfidence.”

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