The Federal Reserve is poised to cut US interest rates in September; failing to do so could undermine its effectiveness and alarm markets, according to Nigel Green, CEO of deVere Group, one of the world’s largest independent financial advisory and asset management firms.
Green’s forecast and caution come as the central bank’s preferred inflation measure—the personal consumption expenditures (PCE) price index—is anticipated to show that inflation is nearing the Fed’s 2% annual target.
He notes: “With inflation data expected to decline today, there will be additional support for a rate cut. Market analysts eagerly anticipate this move, viewing it as crucial for sustaining economic momentum.”
“A cool June reading of Friday’s release of the Personal Consumption Expenditures (PCE) price index, the Fed’s favorite inflation gauge, would seal the deal for a September rate cut for the markets. They’ve almost fully priced-it in. A failure by the Fed to do so could send shockwaves around the world.”
Recent inflation data has been encouraging. The Consumer Price Index (CPI) report from July 15 showed a 0.1% drop in prices for June and a modest 3% year-over-year increase. The core CPI, excluding food and energy, rose just 0.1% monthly and 3.3% annually. These numbers suggest inflation is finally easing, a major relief for the Fed.
“Investors are optimistic. Inflation readings have been slower, boosting expectations for a rate cut. The Federal Open Market Committee (FOMC) has kept the federal funds rate at 5.25% to 5.5% since July 2023, but we are now heavily favoring a quarter-point cut in September.”
Nigel Green continues: “This week’s tech stock tumble only adds to the conviction. It signals to the Fed that the current rates are now putting undue pressure on a vital sector of the economy. A rate cut would alleviate this pressure, making it cheaper for these companies to borrow, invest, and grow, thus stabilizing the market and restoring confidence.”
He goes on to add: “The Federal Reserve’s job is to promote maximum employment and stable prices. With inflation cooling, the Fed needs to pivot to support growth. Not cutting rates in September could be seen as a failure to uphold its mandate.
“2024 started rough, but the inflation cooldown is a golden opportunity for the Fed. Lowering rates now would sustain economic momentum, boost job creation, and spur consumer spending. It would also show that the Fed is responsive and committed to its dual mandate.”
The case for a September rate cut is strong. The latest data supports the view that inflation is under control. Market sentiment, tech stock reactions, and futures pricing “all scream for a cut.” Most importantly, the Fed’s duty to create economic stability demands it.
The deVere CEO concludes: “Given the current economic landscape and clear signals from data and markets, a rate cut seems almost certain. Failing to cut rates in September would be a missed opportunity and a dereliction of duty.”