Fed likely to pause rate cuts in 2025, investors urged to act cautiously
Investors are being urged to act with caution and reassess their portfolios as mounting evidence suggests the Federal Reserve will not cut interest rates in the first half of 2025 – even if it does so on Wednesday.
The warning from Nigel Green, CEO of deVere Group, one of the world’s largest independent financial advisory organisations, comes as persistent inflationary pressures, coupled with a resilient US labour market and fiscal policies expected from the incoming Trump administration, cast significant doubt over any near-term monetary easing.
Despite market hopes for a Fed rate cut as early as December, recent data reveals that inflation remains a major concern.
The US Consumer Price Index (CPI) for November rose to 2.7% on a 12-month basis, marking an uptick from October, while core inflation sits stubbornly at 3.3%. Such figures underscore that price pressures are far from subdued, despite earlier signs of cooling. The Fed will be hard-pressed to justify loosening monetary policy while inflation regains momentum.
In addition to inflation, the robust US job market complicates matters further. Unemployment remains near historic lows, and labor market strength typically dissuades policymakers from cutting rates. Wage growth, which fuels consumer spending, could keep inflation elevated well into 2025.
Nigel Green says: “We’re entering a phase where inflation remains a persistent threat, and interest rates are unlikely to come down as quickly as markets had hoped.
“This calls for a careful rebalancing of portfolios. Investors need to prioritise quality assets, build up inflation-resistant positions, and adopt a more defensive stance.”
“This comes amid growing market pressure on the Federal Reserve to ease monetary policy to sustain economic growth.
“However, policymakers can’t risk further stoking inflation, especially as President-elect Trump’s proposed agenda of tax cuts, deregulation, and large-scale infrastructure spending is expected to drive inflation higher in the coming months.”
There are four key considerations for investors.
First, bond market opportunities. “While higher rates have battered bond prices over the past two years, fixed income assets are now presenting substantial value. Long-term government and corporate bonds, in particular, can offer stable returns as inflation expectations moderate and investors look for safer havens,” notes the deVere CEO.
Second, quality equities. “Investors should focus on companies with strong balance sheets, stable cash flows, and proven pricing power. These businesses are better positioned to weather an environment of higher borrowing costs and inflation.”
Third, diversification into inflation hedges. Nigel Green says: “Assets such as gold, Bitcoin and commodities remain essential tools for portfolio protection. In addition, dividend-paying stocks can provide consistent income streams to offset the erosion of purchasing power caused by inflation.”
Minimising overexposure to risky sectors: “Sectors reliant on cheap borrowing, such as tech and growth stocks, could face increased headwinds if rates remain elevated. Investors should reassess their exposure and prioritise sectors that benefit from inflation and steady economic demand, such as energy, utilities, and healthcare.”
The deVere CEO concludes: “Strategic investors will seize this moment to reposition themselves for the new reality—a reality where caution, vigilance, and adaptability are paramount.”