US CPI: markets overly confident of Fed pivot

Markets appear to be overly confident of a policy pivot by the Federal Reserve, warned the CEO of a leading independent financial advisory and fintech, as the inflation figure in the US is published by the Bureau of Labor Statistics.

“Inflation remains sticky. The Fed will not want to take the risk of pivoting on policy too soon by cutting rates,” said Nigel Green of deVere Group.

“The data is still not strong enough for the central bank of the world’s largest economy to commit to reversing its most aggressive tightening campaign in decades – yet the markets seem read to confidently and heavily price-in rate cuts.

“Therefore, we could see a market rally as the year ends, but this could be overly optimistic.”

Green said that the Fed is expected to leave the US interest rate unchanged at the 5.25%-5.5% range on Wednesday following the last monetary policy meeting of the year.

“But, so far, there’s no pivot in sight.”

Inflation stickier

The deVere CEO added that, “inflation is still turning out to be stickier than expected. We expect that markets are pricing-in cuts too quickly. It will be next year before we really know.

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

The deVere CEO said 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.

“Will the Fed really pivot with inflation stubborn? We think not.

“Yet markets seem to be getting carried away that the Fed and its peers of major central banks are ready to pivot,” Green said.

“Significant opportunities remain, but investors should avoid complacency.”