Market Bull Expects US Fed to Raise Rates Six Times By 2024 Due to High Inflation
01:28 GMT 29.11.2021 (Updated: 13:36 GMT 06.08.2022)
© AP Photo / Richard DrewSpecialist John O'Hara works at his post on the floor of the New York Stock Exchange, Friday, Nov. 26, 2021
© AP Photo / Richard Drew
Prices for personal consumption expenditures, or Core PCE, jumped 4.1% in October from a year ago, the highest increase since January 1991, according to the Commerce Department. In October, the consumer price index, or CPI, also increased rapidly, by some 6.2%.
Inflation has tempered the view of a long-time US market bull, CNBC reported, citing Phil Orlando of Federated Hermes, who spoke to the outlet about the current inflation crisis.
Orlando said he believes the Federal Reserve will raise interest rates six times over the next two years to contain the enormous price increases across the board, from automobiles to housing to groceries.
"Our best guess is that we will see two quarter-point rate hikes out of the Fed in the second half of next year, and perhaps another four quarter-point rate hikes over the course of calendar ’23," the firm’s chief equity strategist said.
Orlando is highly concerned by recent inflation figures, as both personal consumption expenditures and the Consumer Price Index (CPI) are increasing at their fastest rates in three decades.
"Given the surge in inflation that we’ve been seeing lately, it wouldn’t surprise me frankly if the Fed accelerated that pace of tapering," he said. "Once the tapering is done, we’d expect to see some rate increases."
According to Orlando, this is what might catch Wall Street off guard, influencing the markets.
"The Fed has been, I think to some degree, talking a good game along with the Biden administration in terms of the temporary or transitory of inflation," he noted.
The expert, on the other hand, feels the Fed is aware of the gravity of the problem. He points to the decision to start tapering this month as one example.
"They’re going to remove accommodation at a reasonable pace over the next two years or so in order to try to get their hands around inflation and see if they can get that genie stuff back into the bottle," he told CNBC.
Orlando said in the current situation he favors equities in the energy, minerals, and industrials sectors in a rising rate environment because of their capacity to recoup growing business costs, raise prices, and boost profits.
"What we’re doing is trying to invest in the companies that are navigating this situation in a reasonably good shape," the financier said.
The Fed's preferred Core PCE inflation index excludes food and energy from its calculations. Food and energy are included in the CPI index of the Labor Department, which tracks what consumers pay for items.
In the meantime, according to a new poll, inflation was voted the "most important issue facing America" by poll respondents in the United States. Concerns about inflation cross party lines, as over 69% of Democrats think inflation has had "some" impact on their lives. At the same time, 79% percent of independents and 90% of Republicans agree.
24 November 2021, 13:12 GMT
And, according to this week's minutes of the Fed's monthly meeting, the Federal Reserve is poised to phase out the pandemic-era stimulus it has been providing the US economy more swiftly, as the billions of dollars it spends each month fuel runaway inflation.
Due to the COVID-19 pandemic-related shutdowns and other disruptions, the US economy declined by a total of 3.5% in 2020. This year's growth has been uneven, with annualized growth of 3.5% in the first quarter, 3.6% in the second, and 2.1% in the third.