Expect no Christmas cheer from the Fed as US inflation runs hot: deVere CEO
Expect no Christmas cheer from the Federal Reserve as US inflation comes in hot, warns the CEO of deVere Group, one of the world’s largest independent financial advisory organisations.
The comments from Nigel Green come as consumer prices rose 0.4% in October, beating the 0.3% economists had forecast, while core prices, which strip out food and energy, climbed 0.3% for a third consecutive month against expectations of 0.2%.
He says: “These are the inflation numbers nobody wanted to see. Price pressures are digging in across the US economy, and the Fed now has very little room to look the other way.”
Hours before the release, Fed governor Christopher Waller signalled he’s leaning towards a December hike, and said a half point move should be considered if core inflation came in around 0.3% or higher. October delivered exactly that.
Markets reacted within minutes. Nasdaq-100 futures fell 1.2%, the two-year Treasury yield jumped more than 15 basis points to almost 4.7%, and the dollar firmed. Traders now see a December hike as a near certainty.
“Markets priced in a hike almost instantly,” says Nigel Green. “The question for December 9 is how big it’ll be, and how many more follow it into 2027.”
The deVere CEO argues October’s core reading matters more than the overall figure, because energy has been pulling in the opposite direction. Brent crude slipped below $90 a barrel on Tuesday for the first time since August.
“Oil’s been falling and core inflation is still running hot,” he says. “Three months of 0.3% works out at an annualised pace of around 3.7%. For a central bank with a 2% target, it’s simply too high to ignore.”
He adds that the strength of the jobs market gives policymakers cover to act. The US economy added 165,000 jobs in October, more than double forecasts.
“When hiring’s this strong, the Fed can tighten without fearing it’ll tip the economy over the edge,” says Nigel Green. “It’s got the justification and the data. Expect it to use both.”
Technology shares led the selling, with chipmakers among the hardest hit, while Bitcoin dropped below $73,500 as rate expectations climbed.
“Higher rates bite hardest where valuations lean most heavily on future earnings,” he says. “Tech has had a remarkable run on the hope of cheaper money. Investors are now being asked to price in the opposite.”
Attention turns next to Friday’s wholesale inflation figures, the last major data point before the Fed meets.
“Another hot reading on Friday and a half point move becomes a serious possibility,” says Nigel Green.
“Mortgage rates, business loans and government borrowing costs are all likely to stay higher for longer than many households and companies had planned for.”
He also sees reasons for optimism amid the tightening.
“Higher yields bring real rewards for savers and income seekers, who are being paid more than they have in years,” he says. “And a Fed willing to act decisively now gives it a far better chance of getting inflation under control, which is ultimately good news for markets over the longer term.”
He concludes: “Anyone hoping for a festive rate cut can put that wish list away.
“The Fed’s message is clear. Inflation is sticky, and it intends to stamp it out.
“Those who plan around higher rates for longer will go into 2027 in far better shape than those still waiting for relief.”