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stocks issues market commentary from deVere Group.
Cooling core inflation is strengthening the case for interest rate
cuts, as the latest US price data points to easing price pressure
across the world’s largest economy, warns the CEO of global
financial advisory organisation deVere Group.
The comments from Nigel Green follow today’s release of the
December Consumer Price Index, which showed core inflation rising by
just 0.2% on the month and 2.6% on an annual basis — both
readings coming in below market expectations.
The softer outcome reinforces growing evidence that underlying
inflation pressures continue to moderate.
Headline inflation rose by 0.3% in December, with the all-items annual
rate holding at 2.7%, in line with forecasts.
While policymakers assess both measures, core inflation remains the
preferred guide for long-term price trends, making today’s data
particularly significant for the direction of monetary policy.
Nigel Green says the figures underline how quickly the inflation
picture has changed.
“Core inflation undershooting expectations sends a powerful
signal that the disinflation process is gaining traction. Keeping
rates at restrictive levels when underlying price pressures are
easing risks doing unnecessary damage to growth.”
The CPI data follows Friday’s employment report, which also
showed signs of a softening labour market. Payroll growth slowed more
than expected, while wage gains moderated, adding to the case that
demand across the economy is cooling.
“The inflation data and the jobs numbers now tell the same
story,” explains the deVere CEO.
“Price pressures are easing and the labor market is losing
momentum. Policy needs to reflect where the economy is heading, not
where it’s been.”
The argument for easing now rests on three converging trends.
Inflation no longer poses the same threat it did a year ago.
Employment growth shows signs of fatigue. Financial conditions remain
tight relative to the economic backdrop, keeping pressure on
households and businesses.
“Rates remain calibrated for an inflation battle that’s
largely now been won,” Nigel Green says. “Maintaining
this level of restriction risks turning a slowdown into something
more severe.”
Higher borrowing costs continue to weigh heavily on consumers,
particularly in housing, credit cards, and small business financing.
While easing inflation offers relief at the checkout, tight monetary
policy threatens to blunt those gains by suppressing confidence and
investment.
International markets also feel the consequences of prolonged US
policy restraint.
Elevated rates support a stronger dollar, tighten global financial
conditions, and place added strain on emerging economies carrying
dollar-denominated debt. A shift toward easing would help stabilise
capital flows and ease pressure across international markets.
“The global economy is increasingly sensitive to US policy
decisions. A move toward lower rates would support stability not
only in America, but across the international financial
system.”
Investors now see the risk profile shifting. The dominant threat
appears less about inflation re-accelerating and more about policy
remaining too tight for too long.
History shows that central banks often err by easing late rather than
early, transforming manageable slowdowns into deeper downturns.
“Every cycle carries the danger of acting after the damage is
done. The data now offers a chance to move before growth stalls more
sharply,” concludes the deVere Group CEO.
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