Fed Chair Powell Expected to Exercise Caution
Investors speculating on an imminent interest rate cut by the US Federal Reserve may not receive the news they are anticipating. Grant expressed his belief that Fed Chair Jerome Powell will proceed with caution due to ongoing inflation concerns, which have exceeded the central bank’s target level.
Grant explained, “Chairman Powell is still haunted by the Fed’s inability to spot the surge in inflation that began in 2020 and 2021. The last thing he wants to do is declare a premature and preliminary victory.”
Inflation’s Permanent Nature
With price increases persisting and reaching a four-decade high of 9.1% in June 2022 before subsiding, Grant debunked the notion that inflation is transitory. He stressed, “Inflation is not transitory because the purchasing power lost to inflation cannot be regained.”
Grant’s Views on Rate Cuts and Market Expectations
While Grant refrained from specifying when he expects the Fed to commence rate cuts, he suggested they would likely be gradual and occur later than anticipated by the market. The central bank is waiting for inflation to decline toward its targeted 2% range.
According to the Bureau of Labor Statistics, the US Consumer Price Index rose by 3.1% over the past year as of November.
Banks’ Expectations Diverge
ING bank projects an early rate cut as soon as the second quarter of next year, whereas Swiss bank UBS forecasts the Fed to slash rates by 2.75% next year.
On the other hand, the Fed’s own outlook anticipates a total reduction of 0.25 percentage points in interest rates throughout 2024.