The Federal Reserve has finally voiced what was previously unspoken: stagflation is not merely a remote possibility but a distinct and immediate concern. For several months, officials have skirted the issue. But now, they’ve shed their reservations.
Here is Nigel Green, the CEO of leading financial advisory firm, presenting his analysis.
deVere Group
following the Federal Reserve’s indication on Wednesday of anticipated decelerated economic expansion, increased price pressures, and deteriorating job market conditions.
Together, these elements indicate a uncommon and severe economic situation known as stagflation. In this case, the central bank explicitly blamed trade policies—in particular, President Donald Trump’s stringent tariff measures.
“The Fed has just validated what we’ve been cautioning our clients about for over three months,” stated Nigel Green, CEO of deVere Group.
When you consider increasing costs alongside decreasing productivity, and add in trade conflicts, the outcome is an economy at a standstill with limited favorable options. This scenario exemplifies stagflation—something even the Federal Reserve acknowledges.
In March, when the Federal Open Market Committee convened, it had already lowered its economic growth forecast and adjusted its inflation projections upwards. At that time, Chairman Jerome Powell indicated that tariffs were partially responsible for these changes.
However, after April’s unexpected tariff announcement from President Trump, which surprised even the most pessimistic market observers, the central bank has changed course.
This week, Powell made no effort to cushion the impact.
He informed journalists that the tariffs “have a high probability” of increasing inflation while simultaneously stifling economic growth and elevating joblessness—a scenario typical of textbook stagflation. This shift in his stance has startled international investors.
“The Fed’s candor arrives late, yet it is appreciated,” remarks Nigel Green.
Investors cannot afford to wait for clear policies from Washington. The optimal moment to hedge, realign, and diversify was yesterday; however, the second-best time is today.
Although Trump momentarily paused the newest round of tariffs, the Federal Reserve seems prepared for them to reemerge at any time. Given Trump’s history, unpredictability appears to be a key element of his strategy, and this uncertainty is being factored into market prices.
This represents a stark contrast to earlier in the year, when expectations of changes in monetary policy caused many to think that the toughest times were behind us.
However, inflation has turned out to be persistent. The core Personal Consumption Expenditures (PCE), which the Federal Reserve favors as an indicator, continues to stay significantly above their objective. At the same time, the strength in the labor market seems to be weakening—the pace of wage increases is stagnating, and filings for initial unemployment benefits are climbing. Supply chains are facing pressure due to fresh tariff concerns, and consumers’ optimism is beginning to wane.
In this setting, conventional 60/40 portfolios fall short,” noted Nigel Green. “Investors should seek increased involvement with assets resistant to inflation such as specific commodities, real estate, and defensive stocks.
And given the dollar’s susceptibility to policy shifts and trade disturbances, spreading investments across different countries is utterly crucial.
The change in the Federal Reserve’s stance has created a quandary: cutting interest rates might exacerbate inflation, yet maintaining higher rates poses the risk of a more severe economic downturn. Investors can no longer count on a gentle easing process. In this scenario, volatility isn’t an unintended side effect; rather, it is an inherent characteristic of the present conditions.
Investors are shaping their portfolios for a scenario where economic growth is slow, inflation remains high, and political factors skew broader economic indicators. This environment resembles stagflation, and overlooking this demam isu might be detrimental.
“Investors should not count on central banks to ease the journey,” states Nigel Green.
The Federal Reserve has finally acknowledged the reality of stagflation. This ought to serve as an awakening. You cannot afford to sit back and hope for stability; you must integrate it into your investment approach since numerous genuine opportunities abound.
He concludes: “When the Fed aligns with reality, savvy investors are already adapting to this change.”
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The Fed acknowledges stagflation concerns: Investors urged to take swift action, advises deVere
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