Interest rates are once again a hot topic for the Federal Reserve and the US economy. However, experts believe the regulator will not lower them anytime soon. The fact is that inflation in the United States remains stubbornly above the Fed’s 2% target, according to analysts at deVere Group, an independent financial advisory and asset management firm.
Recent reports show that in December 2024, the core personal consumption expenditures (PCE) index, the Fed’s preferred inflation gauge, rose 2.8% year-over-year, while the overall PCE inflation rate increased 2.6%. While these figures met expectations, they indicate worsening disinflation prospects, which experts find concerning.
According to Nigel Green, CEO of deVere Group, inflation has proven to be more persistent than many market participants had hoped. The latest data has crushed expectations of an imminent rate cut. “This should pour cold water on the idea of imminent rate cuts. The Fed will be extremely cautious about loosening monetary policy too soon, especially after spending years trying to regain control of inflation,” Green added.
The latest inflation figures reinforce the Fed’s decision to delay rate cuts. At its January meeting, the central bank acknowledged that price pressures had eased from post-pandemic highs but emphasized that it was not yet ready to lower borrowing costs.
Despite this, many market participants had been betting on a first rate cut in March 2025. However, deVere Group’s currency strategists warned that these expectations were premature. Green explained that the Fed understands that cutting rates too soon could trigger another wave of inflation, undoing all the progress made so far. The central bank will need far stronger evidence of a sustained downward inflation trend before considering a policy shift.
For investors, the prospect of prolonged high interest rates is not great news. If borrowing costs remain elevated, growth stocks, especially in the tech sector, could struggle. Given this, the deVere Group CEO recommends that investors reassess their portfolios.
Green predicts that rates will stay high longer than many expect. “Investors should be reassessing their portfolios with a focus on hedging against potential economic turbulence,” he concluded.
