Fed rate hike bets on collision course with Fed’s own data
A Fed rate rise in September would be a costly overreaction to a story the numbers no longer support, warns the CEO of one of the world’s largest independent financial advisory organisations.
Nigel Green of deVere Group’s warning come as swaps traders push the odds of a Federal Reserve rate hike above 50%, up from around 35% before Kevin Warsh’s hawkish address in Jackson Hole, in which the Fed chairman vowed to keep pressing until inflation is “clearly” moving back to the 2% target ahead of the central bank’s meeting on 15 and 16 September.
The chief executive comments: “Warsh gave a tough speech in Jackson Hole, and markets reacted exactly as tough speeches make them react.
“But a warning isn’t a decision, and investors racing to price in a hike are getting ahead of a Fed chairman who left himself every route to hold.”
Inflation, Nigel Green notes, is easing rather than accelerating. July’s consumer price index rose 3.4% year over year, down from 3.5% in June, with the monthly gain slowing to just 0.1%.
“Warsh talked about underlying pressure, and there is some.
“But the trend line is cooling, not running away. It’s hard to justify a hike in September on a data set that’s moving in the direction the Fed wants, even if it isn’t moving fast enough for his taste.”
The bigger complication, he argues, sits in the labour market. July’s jobs report showed the US economy unexpectedly shed 23,000 positions, while unemployment climbed to 4.2%.
“You don’t tighten policy into a labour market that just turned negative,” notes Nigel Green.
“A reversal like this changes the calculation entirely. Warsh knows a hike now risks turning a soft patch into something a great deal harder to reverse.”
Politics adds another layer to the standoff. Warsh was appointed by president Trump, who has pushed relentlessly for cheaper borrowing and openly criticised Warsh’s predecessor for moving too slowly on cuts, with November’s midterms only weeks after the September decision.
“Nobody at the Fed wants to look like they’re taking orders from the White House, and Warsh least of all after the credibility questions raised by his July press conference.
“But raising rates just as the labour market cracks and heading into an election would be reckless, whatever the optics of holding firm. He’ll want distance from both accusations, and holding gives him that.”
August’s CPI report, due 11 September, lands just days before the vote and could still move the needle either way, he acknowledges.
“A genuinely hot inflation print changes my view instantly, and I’d be watching energy costs and AI-driven demand as closely as anyone,” explains the deVere CEO.
“But barring a real shock in that report, the case for standing pat is far stronger than the swaps market currently believes.”
Nigel Green adds that Warsh’s insistence on a fixed 2% target, and his refusal to offer forward guidance, points to a chairman building room to manoeuvre rather than one locking in a decision.
“He deliberately didn’t commit to timing, and that matters more than the tone,” he says. “It seems that too many investors latched onto the warning and skipped past the caution built into it.”
Asked for his final call, Nigel Green is direct.
“Cooling inflation, a labour market that just rolled over, and an election-season Fed chairman under political pressure from both sides is not the backdrop for a surprise hike,” he concludes
“We can’t see him raising rates in September.”