Massive Inflation will hit Federal Reserve
Inflation has tempered the view of a long-time market bull.
Phil Orlando of Federated Hermes believes the Federal Reserve will raise interest rates six times over the next two years to contain enormous price increases across the board, from automobiles to housing to groceries.
“Our best prediction is that the Fed will hike rates by 2 quarter points in the second half of the year 2022.” And most possibly another 4-quarter-point rate raise in the calendar year ’23,” the firm’s top equity strategist told reporters.
Orlando, which manages $634 billion in assets, is concerned about the recent inflation figures. Personal consumption expenditures and the Consumer Price Index (CPI) are increasing at their fastest rates in three decades.
Prices for personal consumption expenditures, or Core PCE, jumped 4.1 percent in October from a year ago, according to the Commerce Department. The Fed’s preferred inflation index excludes food and energy from its calculations.
More predictions by Orlando
In October, the consumer price index, or CPI, also increased rapidly. Food and energy are included in the Labor Department’s index, which analyses what consumers pay for goods.
“Given the recent spike in inflation, it wouldn’t surprise me if the Fed hastened its tapering pace,” he said. “After the tapering is completed, we should see some rate increases.”
According to Orlando, this is what might catch Wall Street off guard.
“I believe the Fed, along with the Biden administration, has been playing a good game in terms of temporary or transitory inflation,” he remarked.
Orlando, on the other hand, feels the Fed is aware of the gravity of the problem. He points to the decision to start tapering this month as one example.
“Over the next two years or so, they’ll be removing accommodation at a reasonable pace.” “They want to get their hands on inflation and see if they can put the genie back in the bottle,” he explained.
Orlando favours equities in the energy, commodities, and industrials sectors in a rising rate environment. This is due to their capacity to recoup increased operating costs by raising pricing and increasing margins.
“What we’re trying to do is invest in firms who are negotiating this circumstance quite well,” Orlando explained.