Nigel Green, CEO of deVere Group, issues a cautionary note indicating that major central banks are likely to maintain a “higher-for-longer” interest rate strategy for the remainder of 2024.
This stance, he suggests, is driven by persistent inflationary pressures and the need to ensure economic stability.
Green’s warning follows a recent market downturn triggered by surging US Treasury yields and hawkish comments from Federal Reserve official Neel Kashkari. Despite the current restrictive policy stance, Kashkari hinted at the possibility of further interest rate increases.
“We believe that the base case for central banks’ main strategy for the rest of 2024 will be to stick with ‘higher-for-longer’ rates, unless the global economy experiences a significant downturn,” states Green. He emphasizes that this approach aims to address inflationary pressures, making rate cuts a challenging decision in the near term.
In the US, the Federal Reserve faces an economy resistant to cooling off, reinforcing the belief that rate cuts are unlikely this year. Similarly, the Bank of England (BoE) is expected to maintain higher rates, influenced partly by political considerations ahead of the upcoming general election.
Meanwhile, the European Central Bank (ECB) is contemplating gradual rate cuts amidst slowing inflation, while the Reserve Bank of Australia (RBA) grapples with unexpected inflationary spikes.
To navigate this environment, Green advises investors to adjust their portfolios accordingly, focusing on asset classes and sectors resilient to interest rate fluctuations. This includes allocating towards shorter-duration bonds, high-yield corporate bonds, and inflation-protected assets like commodities.
In equities, sectors less sensitive to interest rates, such as technology and healthcare, are poised to offer stability and potential returns.
Green underscores the importance of diversification in mitigating risk and seizing opportunities, concluding that global policy is likely to remain “higher-for-longer” for the foreseeable future.
