Fed unlikely to cut interest rates in early 2025, Investing.com advises caution

As the Fed is expected to keep interest rates steady in the first half of 2025, Nigel Green, CEO of deVere Group, advises investors to be cautious and consider adjusting their portfolios accordingly. This guidance comes on the heels of ongoing inflationary pressures, a strong US labor market, and expected fiscal policies from President-elect Trump’s administration, which will likely prevent the Fed from cutting interest rates in the near term.

Despite previous market expectations of the Fed cutting interest rates, perhaps in December, recent data suggests that persistent inflation is a major concern. The US CPI for November indicated a 2.7% rise over 12 months, an increase on October’s figures, with core inflation remaining at 3.3%. These statistics highlight persistent price pressures, suggesting that inflation is not as under control as previously thought, which in turn may limit the Fed’s ability to implement more flexible monetary policies.

A strong US labor market adds to the complexity, with unemployment rates near historic lows and wage growth likely to keep inflation high through 2025. “We are entering a phase in which inflation remains a persistent threat, and interest rates are unlikely to rise,” Green says. . “It fell as quickly as markets had hoped.” He underscores the need for investors to prioritize high-quality assets, build inflation-resistant positions, and adopt a more defensive investment strategy.

Green also points to increasing market pressure on the Federal Reserve to ease monetary policy to support economic growth. However, he warns that policymakers should avoid further increasing inflation, especially with President-elect Trump’s proposed agenda, which could include tax cuts, deregulation, and big infrastructure spending, which are expected to boost inflation in the coming months. Coming.

Green identifies four key considerations for investors during this time. He suggests looking at bond market opportunities, noting that fixed income assets, such as government bonds and long-term corporate bonds, may provide stable returns. He also advises focusing on high-quality stocks, especially companies with strong balance sheets and proven pricing power, to withstand high borrowing costs and inflation.

Diversification into an inflation hedge is another strategy Green recommends. Assets such as gold and commodities can serve as essential tools to protect investment portfolios, and dividend-paying stocks can provide stable income streams to combat the erosion of purchasing power due to inflation.

Finally, he advises reducing excessive exposure to sectors that rely heavily on cheap borrowing, such as technology stocks and growth stocks, which may face challenges if interest rates remain high. Instead, he suggests prioritizing sectors that typically benefit from inflation and steady economic demand, such as energy, utilities and health care.

Green concludes by emphasizing that strategic investors will use this period to bring the situation back to a new reality where caution, vigilance and adaptability are key.

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