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.
“An annual rate of 2.4% places inflation back within a historically stable corridor for the US economy,” Green said. “Price growth is no longer running at levels that justify emergency-era restraint.
“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,” Green said. “Borrowing costs are materially higher than underlying inflation. The stance was appropriate when inflation was surging, but it’s increasingly misaligned with present conditions.
“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.”
Green urged the Federal Reserve to act decisively at its next meeting taking place on March 17-18.
“The Fed should cut rates at the upcoming meeting,” Green said. “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,” Green warned. “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, Green 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.
“Credibility matters. However, credibility is also strengthened by responding appropriately to incoming data. The numbers now support a rate cut.”
Green stressed that financial markets are already adjusting to the improved inflation environment.
“Bond markets are factoring in the likelihood of easing later this year,” he said. “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.
“The Federal Reserve has the room to cut, and it should use that room at its forthcoming meeting.”