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Written by: George Prior
The US Federal Reserve will “lose the confidence of the public and financial markets” and have “disastrous” economic effects, if it continues raising rates any further, warns the CEO and founder of one of the world’s largest independent financial advisory, asset management and fintech organizations.
The stark warning from deVere Group’s Nigel Green comes ahead of the Personal Consumption Expenditures index, which comes out Thursday at 8:30 am EST.
The PCE price index measures changes in the prices paid by consumers for goods and services over time. It’s one of the key indicators used by the US central bank and other economic analysts to assess inflation trends and make monetary policy decisions.
The deVere CEO comments: “The PCE is being keenly watched as investors were cheered earlier in the week by the weaker-than-expected payrolls data and annual gross domestic product growth forecast – both of which strongly make the case that the Federal Reserve must now stop its most aggressive tightening campaign in decades.”
He continues: “The Fed’s battles against inflation, growth and jobs are being won.
“There are now genuine concerns that unless the Fed drops raising rates, it will drive the US economy into a major recession.
“As the world’s largest and most influential economy, this would potentially have disastrous global implications.”
Nigel Green also stresses that not only must the Federal Reserve abandon its tightening program because the program has been effective, but it must also do so because inflation is likely to fall quicker than many anticipate for three reasons.
“First, there’s unlikely to be a wage price spiral as real wages are typically going down despite the increases. Employers now seem to be holding back from increasing salaries on demand, which will help stifle wage inflation.
“Second, the time lag for monetary policies is incredibly lengthy. It takes around 18 months for the full effect of rate hikes to make their way into the economy – and that’s where we are – and so financial conditions will get squeezed even harder in the near term.
“And third, although many economies are now likely to avoid a full-blown recession, economic growth is still expected to be weak for the foreseeable future.”
He concludes: “If the Fed does not stop its rate hiking agenda, it will lose the confidence of the public and financial markets which would have serious, far-reaching negative consequences for the US and the world.”
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