The Federal Reserve is expected to maintain current interest rates at its policy meeting on Wednesday, resisting pressure from President Trump who has advocated for a full percentage point cut to offset economic impacts from his tariff policies.
Nigel Green, CEO of deVere Group, warns that giving in to these demands could have unintended consequences. "If the Fed caves, the long end of the curve could surge. This means higher—not lower—borrowing costs for US households and businesses," Green stated.
Markets have fully priced in a hold decision, as inflation shows gradual improvement while wage growth and consumer spending remain strong. May’s Consumer Price Index registered at 2.4%, slightly down from April, while core inflation decreased to 2.8%, exceeding forecasts by 0.1%.
"The data is pointing in the right direction—but we’re not there yet," said Green, noting the Fed faces "an uncomfortable blend of sticky services inflation and new price pressures from tariffs."
Green explained that premature rate cuts could signal the Fed prioritizes political demands over price stability, potentially causing yields on longer-dated Treasuries to rise. "The US is more exposed to movements in long-term borrowing costs than short-term ones," he said, adding that higher 10-year and 30-year yields would directly impact mortgages, commercial loans, and public financing.
The yield curve has already steepened significantly in recent weeks, with the 2-year/30-year yield spread reaching its widest point since early 2022, which Green describes as "a warning light" indicating "the market is adjusting for risk, not reward."
Meanwhile, Trump’s expanded tariffs, which a federal court has allowed to remain in place pending review, continue to affect prices. "These tariffs are inflationary by nature," Green noted. "They’re not just trade policy—they’re fiscal tightening disguised as nationalism."
The Fed finds itself in a difficult position as cooling inflation is offset by tariff effects and a tight labor market. While markets hope for dovish language in the updated "dot plot" projections, deVere expects Chair Powell to maintain his current stance.
Looking ahead, deVere sees a potential rate cut in autumn. "September is still on the table. But the bar is very high," Green said, explaining that a cut would require "a more decisive downturn in core inflation, softer employment prints, and some resolution on tariffs."
Green advises investors to remain cautious and maintain diversified portfolios, focusing on "assets with durable pricing power, currency diversification, and low exposure to rising real rates."
He also expressed concern about U.S. debt dynamics, noting that with record debt issuance and weakening foreign demand, "the long end of the curve will remain under pressure."
"The Fed will hold steady tomorrow, that much is clear," Green concluded. "But this is about more than rates—it’s about the integrity of monetary policy in the face of political noise."