The Federal Reserve’s recent decision to hold interest rates just days before the midterms has been labelled a “dangerous gamble with inflation” by Nigel Green, CEO of deVere Group. deVere Group is one of the world’s largest independent financial advisory organisations, providing a wide range of financial services. Green’s comments follow the Fed’s move to maintain rates at 3.75% to 4%, while inflation hovers at 3.7% and voters prepare to head to the polls.
Green argues that with prices rising at almost twice the Fed’s target, the central bank’s inaction is ill-advised. He drew parallels to 2021, when the Fed insisted inflation was transitory, keeping rates low until prices surged to nearly 8% by March 2022, eventually hitting a 40-year high of 9.1%. This led to a series of aggressive rate hikes, with Green noting, “The Fed was asleep at the wheel, and families paid for it at the checkout, at the pump and on their mortgages.” He believes the Fed will likely need to hike again before the year is out, questioning the rationale behind the delay.
Warning signs are reportedly flashing again, with consumer prices jumping 0.6% in September and core PCE, the Fed’s preferred measure, heading towards 3.1%. Americans’ fears about future prices are at their highest since May 2023, while unemployment has remained stable at approximately 4.2% for a year. Green highlighted that a solid labour market coupled with high inflation creates textbook conditions for a rate hike. He also noted that bond markets are losing patience, with the 10-year Treasury yield nearing 5% and the average 30-year mortgage rate close to 7.4%. Green concluded by stressing that central bank independence is paramount, and any decision perceived as political could erode its credibility, suggesting a firm move in December would be crucial to restore confidence.
