US inflation lower than expected

Latest US inflation data shows the Federal Reserve has the space to
cut US interest rates, but despite the figures the central bank is
unlikely to do so at its next meeting, says the CEO of global
financial advisory giant deVere Group.

The analysis from Nigel Green comes as January’s CPI report
confirms annual inflation has cooled to 2.4%, down from 2.7% in
December and easing steadily from just above 3% in September.

Core inflation remains contained, with both headline and core prices
rising 0.3% month-on-month.

Nigel Green says: “An annual rate of 2.4% places inflation
back within a historically stable corridor for the US
economy.”

“Price growth is no longer running at levels that justify
emergency-era restraint.”

He continues: “Inflation has drifted lower for four
consecutive months. The much feared tariff-driven spike following
President Donald Trump’s ‘liberation day’ trade
measures hasn’t materialized in the aggregate data.
Instead, we are seeing moderation.”

With the fed funds target range currently at 3.5% to 3.75%, real
interest rates remain firmly positive relative to a 2.4% inflation
rate.

“Policy is still restrictive in real terms,” explains
the CEO.

“Borrowing costs are materially higher than underlying
inflation. The stance was appropriate when inflation was
surging, but it’s increasingly misaligned with present
conditions.”

He adds: “Recent CPI releases have come in below consensus
expectations. As inflation eases, core pressures are contained,
and expectations remain anchored, monetary policy should adjust
accordingly.”

Nigel Green is now urging the Federal Reserve to act decisively at
its next meeting taking place March 17-18.

“The Fed should cut rates at the upcoming meeting,”
he says. “A measured reduction would acknowledge the
progress made on inflation and prevent unnecessary drag on the
economy.”

Waiting, he argues, carries its own risks.

“Keeping rates elevated for too long risks
overtightening,” Nigel Green warns.
“Interest-sensitive sectors, including housing and business
investment, are already operating under elevated financing
costs.”

“A modest cut would maintain credibility while aligning
policy with data.”

Despite this, he believes policymakers are inclined to maintain a
hawkish posture.

“The Fed is likely to emphasize that inflation remains above
its 2% target.”

“Officials are highly sensitive to the perception of easing
prematurely. Institutional caution is shaping their
communication.”

He adds: “Credibility matters. However, credibility is also
strengthened by responding appropriately to incoming data. The
numbers now support a rate cut.”

Nigel Green stresses that financial markets are already adjusting to
the improved inflation environment.

“Bond markets are factoring in the likelihood of easing
later this year. Equity investors understand that inflation near
2.4% reduces the risk of further tightening. Acting sooner rather
than later would reinforce stability rather than undermine
it.”

He concludes: “The Federal Reserve has the room to cut, and
it should use that room at its forthcoming meeting.”