US inflation lower than expected

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

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

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

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

“Price growth is no longer at a level that justifies restraint in the era of emergency.”

He continues: “Inflation has been lower for four months in a row. The feared tariff-induced spike following President Donald Trump’s ‘Liberation Day’ trade measures has not been reflected in the data collected. Instead, we see moderation.”

With the Fed Funds target currently between 3.5% and 3.75%, real rates remain firmly positive against 2.4% inflation.

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

“Borrowing costs are significantly higher than underlying inflation. This view was appropriate when inflation was rising, but is increasingly out of line with current conditions.”

He added: “Recent CPI releases have been below consensus expectations. As inflation declines, core pressures remain contained and expectations remain anchored, monetary policy should be adjusted accordingly.”

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

“The Fed should cut rates at its upcoming meeting,” he said. “A measured reduction would recognize the progress made on inflation and avoid an unnecessary drag on the economy.”

Waiting, he argues, carries its own risks.

“If interest rates remain high for too long, you risk setting rates that are too strict,” warns Nigel Green. “Interest-rate-sensitive sectors, including residential and business investments, are already operating under high financing costs.”

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

Nevertheless, he believes policymakers are inclined to take an aggressive stance.

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

“Officials are very sensitive to the perception of premature relaxation. Institutional caution shapes their communication.”

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

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

“Government markets are considering the likelihood of an easing later this year. Equity investors understand that inflation near 2.4% reduces the risk of further tightening. Acting sooner or later would strengthen rather than undermine stability.”

He concludes: “The Federal Reserve has room to make cuts, and it should use that room at its upcoming meeting.”