The rand plunged to its weakest in two weeks by 1.6% to R18.14 against the US dollar yesterday ahead of the last US Federal Reserve (Fed) decision for the year on interest rates as the greenback strengthened.
This was the rand’s weakest since December 4 when it was R18.17 to the US dollar.
The Fed is expected to announce another 25 basis points reduction in the fed funds rate tomorrow and provide new economic and policy forecasts. Markets are currently pricing in three more rate cuts next year, with some expecting a pause in rate cuts in January.
However, deVere Group CEO, Nigel Green, yesterday said the Fed will not cut interest rates in the first half of 2025 even if it does so today, thus, investors must act with caution and reassess their portfolios.
Green’s warning comes as persistent inflationary pressures, coupled with a resilient US labor market and fiscal policies expected from the incoming Donald Trump administration, cast significant doubt over any near-term monetary easing.
Green yesterday said the world was entering a phase where inflation remained a persistent threat, and interest rates were unlikely to come down as quickly as markets had hoped.
“This calls for a careful rebalancing of portfolios. Investors need to prioritize quality assets, build up inflation-resistant positions, and adopt a more defensive stance,” Green said.
“This comes amid growing market pressure on the Federal Reserve to ease monetary policy to sustain economic growth. However, policymakers can’t risk further stoking inflation, especially as President-elect Trump’s proposed agenda of tax cuts, deregulation, and large-scale infrastructure spending is expected to drive inflation higher in the coming months.”
Despite market hopes for a Fed rate cut as early as December, recent data reveals that inflation remains a major concern.
The US Consumer Price Index (CPI) for November rose to 2.7% on a 12-month basis, marking an uptick from October, while core inflation sits stubbornly at 3.3%.
Green said such figures underscored that price pressures were far from subdued, despite earlier signs of cooling. He said the Fed will be hard-pressed to justify loosening monetary policy while inflation regains momentum.
In addition to inflation, the robust US job market complicates matters further. Unemployment remains near historic lows, and labor market strength typically dissuades policymakers from cutting rates. Wage growth, which fuels consumer spending, could keep inflation elevated well into 2025.
Green said there were four key considerations for investors, that was bond market opportunities, quality equities, diversification into inflation hedges.
He said that strategic investors will seize this moment to reposition themselves for the new reality-a reality where caution, vigilance, and adaptability are paramount.
BUSINESS REPORT