A softer-than-expected inflation reading won’t stop the Federal Reserve raising rates again before the year is out, warns the CEO of deVere Group, one of the world’s largest independent financial advisory organisations.
The comments from Nigel Green come as the personal consumption expenditures price index, the Fed’s preferred inflation gauge, shows prices up 3.4% over the past year, still well above the central bank’s 2% target.
Core prices, which strip out food and energy, rose 0.2% in August, taking the annual rate to 3%. Both came in below forecasts, but they arrived alongside sweeping changes to how the Bureau of Economic Analysis calculates the index.
The CEO comments: “Anyone treating today’s numbers as a green light for the Fed to stand down is, we expect, going to be making a big mistake.
“Headline inflation at 3.4% is still miles above target, and a good chunk of the drop in core comes from statisticians changing their sums.
“We said after September’s hike it wouldn’t be the last one this year, and we’re sticking with that call.”
The BEA has revised its methods back to 2021 for items including legal services, software and portfolio management fees. Economists had expected the changes alone to shave two or three tenths of a percentage point off annual inflation.
He says: “Recalculating legal fees and software prices does nothing for the cost of filling up a lorry or paying the mortgage.
“The Fed knows the difference between a softer number and softer inflation, and it sets policy on the second.”
The Fed lifted its target range to 3.75% to 4% on September 16, its first hike in three years, and the vast majority of policymakers pencilled in at least one more increase before the end of 2026. Today’s figures are the last PCE reading officials will see before they meet on October 28.
Nigel Green says the Fed’s own messaging leaves little room for a pause.
He says: “Kevin Warsh told Jackson Hole the 2% target is firm and fixed, and he’s been clear the Fed looks at trends and ignores isolated data points.
“One cooler month, measured on new methods, doesn’t make a trend.
“Six-month PCE inflation was running above 4% annualised when he spoke. A single softer print leaves that picture largely intact.”
Energy is still pouring fuel on the fire. The conflict involving Iran has kept pressure on oil, and diesel now averages more than $6.50 a gallon, up around 75% in a year.
He says: “Energy costs seep into everything, from food on the shelves to the cost of moving goods around the country. Those costs haven’t fully worked their way into prices yet, and the next few months could look a lot less friendly.”
Borrowing costs are already biting. The average 30-year fixed mortgage rate has pushed above 7%, its highest since January 2025, while the 10-year Treasury yield has broken through 5%.
He says: “Markets may well scale back their bets on an October hike after today. Anyone taking this as the all-clear could get caught out by December.
“Borrowers on variable rates, or facing a remortgage in the next 12 months, should be asking how they’d cope if rates rose again. Long-dated bonds are exposed too, and investors carrying a lot of duration face a serious question about whether their portfolios can absorb another move.”
Nigel Green concludes: “The Fed has made its priorities crystal clear. Inflation comes first, and 3.4% is a long way from job done.
“One cooler reading hasn’t changed the direction of travel. Anyone betting on a pause between now and Christmas is taking a big gamble.”