Investors are underpricing how close the Fed is to a September hike
Investors should be preparing their investment portfolios for a possible US interest rate hike by the Federal Reserve next month, warns the CEO of one of the world’s largest independent financial advisory organisations.
Nigel Green of deVere Group’s warning comes as CME FedWatch data now puts the odds of a quarter-point hike at September’s meeting at 61.4%, up sharply from 50.6% just a month ago.
The probability of a larger half-point move has meanwhile fallen to zero, down from 25% a week earlier, suggesting markets have converged on a smaller, more deliberate increase rather than a dramatic shift.
Minneapolis Fed president Neel Kashkari was one of three dissenters at July’s meeting, arguing for an immediate quarter-point hike on the grounds that corporate earnings and the labour market show little sign of policy being restrictive.
It marked the first three-way dissent of Fed chair Kevin Warsh’s tenure. Oil prices have also pushed above $100 a barrel in recent weeks, adding fresh pressure to the inflation outlook.
Nigel Green says the scale of the shift in market pricing over the past month is the real headline for investors.
“A jump from roughly even odds to well over 60% in a single month tells you the debate inside the Fed has genuinely changed, not just the mood on trading desks.”
The deVere CEO points to the return of energy-driven inflation as the clearest signal that policymakers are running out of room to stay patient.
“Oil back above $100 a barrel changes the calculation quickly for any central bank still chasing a 2% target,” he notes.
“Officials who felt comfortable holding steady in June are now looking at a very different inflation picture heading into September.”
He argues portfolios positioned for easier policy this year now carry meaningful risk.
“A lot of investors had built positions around the idea that cuts were coming in 2026,” he says.
“The thesis has been quietly falling apart for weeks, and a lot of exposure to long-duration bonds and richly valued growth names hasn’t caught up with where the data actually points.”
Nigel Green expects the dollar and rate-sensitive sectors to move well before the Fed’s decision itself.
“Markets price probability, not certainty, and 61% is already doing real work across currencies and equities,” he explains.
“A stronger dollar and firmer margins for financials tend to show up early in this kind of shift. Highly leveraged companies and richly valued growth stocks are usually the first to feel it.”
He adds that Kashkari’s dissent should be read as a genuine signal rather than a one-off.
“Three policymakers voting for an immediate hike tells you a meaningful bloc inside the Fed already believes the case for staying on hold has weakened. This view is clearly gaining ground.”
Nigel Green concludes: “Six weeks ago the base case was a hold, maybe even a cut later in the year.
“Now a hike looks like the more likely outcome. Investment portfolios built for the old narrative need a serious review before September, not after.”