Business a.m.
With $6.4 trillion wiped off global stocks in three weeks, the Federal Reserve must cut rates now, and at the September and November meetings, warns the CEO of one of the world’s largest independent financial advisory and asset management organizations.
The stark warning from deVere Group’s Nigel Green comes after yesterday’s global sell-off triggered by investor fears about a looming US recession, the Fed being behind the curve on rate cuts and economic turbulence in Japan with a rising yen.
He says: “Despite something of a rebound on Tuesday, the foundations of market confidence have been deeply shaken.
“Markets will continue to panic until they see signs of the Fed – the central bank of the world’s largest economy – responding.
“The time for hesitation is over; the Fed must act decisively to avert further instability.
The Federal Reserve, as the steward of the US economy, holds the power to influence global financial stability.
“An emergency rate cut before the September meeting would be a strong signal that the Fed is prepared to restore confidence and counteract destabilizing forces.”
The retracing of some losses in stock markets should not lull the Fed into a false sense of security. Instead, it should be viewed as a temporary reprieve, says the deVere CEO.
By cutting rates by 50 basis points in both September and November, after an emergency cut in August, the Fed can provide the necessary signal of support.”
One of the most compelling arguments for immediate Fed action is the wisdom embedded in the market itself.
Financial markets are often criticised for their volatility and unpredictability, yet they are also a valuable barometer of economic sentiment.
“The markets know better than the Fed. The global rout is a clear signal that investors are bracing for turbulent times. By ignoring these signals, the Fed risks exacerbating the very instability it seeks to prevent,” notes Nigel Green.
Should the Fed pivot and implement the necessary rate cuts, investors must be prepared to adapt their strategies accordingly.
A rate cut could reignite market enthusiasm, leading to shifts in capital flows and altering risk assessments across various asset classes. Investors would do well to reassess their portfolios in light of these potential changes.
In a lower interest rate environment, growth-sensitive sectors such as tech and consumer goods are likely to benefit. These sectors typically perform well when borrowing costs are low, as companies can invest more freely in innovation and expansion. Investors might consider increasing their exposure to these sectors to capitalize on potential gains.
Furthermore, with reduced borrowing costs, leveraged plays—investments that use borrowed funds to amplify potential returns—might see a resurgence in appeal. However, it is crucial for investors to approach these opportunities with caution.
The increased potential for returns also comes with heightened risk, and maintaining a diversified portfolio remains essential for mitigating potential downsides.
Nigel Green concludes: “As Fed policymakers deliberate, they must remember that the markets have spoken. Ignoring these signals comes at our peril. The Fed must not only listen to the markets but also act with the urgency that the situation demands.
“The cost of inaction is too great, and the time for decisive action is now.”
