The failing Federal Reserve is helping to trigger a global recession and has exported inflation globally.
The damning assessment from Nigel Green, CEO of deVere Group comes as the U.S. central bank IS expected to raise its benchmark interest rate again on Wednesday by 75 basis points in an attempt to control soaring inflation.
He comments: “The Fed, the world’s most influential central bank which oversees the world’s largest economy, failed spectacularly early on.
It was asleep at the wheel and didn’t get a grip on what they perceived to be ‘transitory’ inflation. The war in Ukraine of course hasn’t helped, but the problems including supply chain disruptions and massive fiscal spending for pandemic relief, were in plain sight.
This failure to act timely has now prompted the policymakers to over-compensate with a 75-bps rate increase, which would be the biggest since 1994.
He says: “More rate hikes are expected too this year as the Fed battles surging inflation." and continues “This aggressive hitting the brakes in a doomed catch-up agenda is way too late."
The Fed is out of step and, therefore, it’s now helping push the world into global recession. Economic conditions around the world are going to become increasingly tight in the near future.
Frustratingly, says the deVere CEO, the rate hikes may not even slow inflation as the soaring prices are largely triggered by supply chain issues, the Russia-Ukraine war, and lockdowns in China causing new bottlenecks, amongst other issues, which the Fed’s hikes will not solve.
“Furthermore, it could be argued that technically the U.S. has exported inflation to the rest of the world. Why? Because the higher the rate, the higher the dollar, and the higher commodity prices for the rest of the world as they are priced in U.S. dollars.
“As the risks of a global recession ramp up, partly due to the Fed’s missteps, there remains one clear way for investors to maximize returns relative to risk: the practice of portfolio diversification.”
However, Green has also recently warned that the standard 60/40 investment portfolio is not fit for purpose in today’s environment.
For about half a century, investors have been able to create, grow and protect their wealth using the 60/40 portfolio model. 60% stocks and 40% bonds were enough to hit both goals of capital appreciation and capital preservation. This is no longer the case.
He suggested that investors should consider diversifying into less traditional, return-enhancing asset classes.
Nigel Green concludes: “We’ve transitioned within a matter of months from a sleepy, inactive Fed to an overly aggressive one." and “Both have been out-of-sync with reality, with households, businesses and investors paying the price.”
