2023-12-20 05:55:01
CPA and attorney Itai Rushkevitz, CEO of Complex financial consulting company, and Mor Katz Abrahami, an analyst at the company, have weighed in on the recent interest rate decision by the Federal Reserve, providing their analysis and insights into the potential implications for investors.
The Federal Reserve’s announcement of the end of interest rate hikes and the expectation of three interest rate cuts in 2024 has led to significant market gains. However, Rushkevitz and Abrahami believe that the announcement was made prematurely and that the Fed may face challenges in achieving its inflation target.
One of the key challenges highlighted by the experts is the current high level of inflation, which is significantly above the long-term target of 2%. The Fed’s expectation of a sharp drop in core inflation to 2.4% in 2024 is seen as a complex and difficult task, particularly due to the entrenched price increases in the economy, especially in the service sector.
Furthermore, the expectations of interest rate cuts have the potential to create new inflationary processes, challenging the Fed’s ability to curb inflation and actually lower interest rates. The decline in bond yields following the announcement is expected to improve financing conditions but could also lead to increased economic growth and a renewed surge in inflation in the short term.
The strength of the American economy, with a tight labor market and low unemployment rate, adds to the inflationary risks. Additionally, geopolitical factors such as the ongoing threat of regional conflict and risks to maritime transport in the Middle East could further impact inflation.
Rushkevitz and Abrahami also express concerns about the Fed’s willingness to accept inflation that exceeds the target over time, despite the potential risks to the central bank’s credibility and the economy as a whole.
In light of these factors, the experts advise investors to beware of the bond market and prioritize investments in instruments with a variable interest rate over short-term bonds with a fixed interest rate.
Overall, while the Fed’s announcement has been met with optimism, Rushkevitz and Abrahami caution that the high expectations for interest rate cuts in 2024 may be too optimistic and carry significant risks for investors.
It is important to note that the views expressed by Rushkevitz and Abrahami are based on their expert analysis and should not be considered as investment advice. Each individual’s investment decisions should take into account their specific needs and circumstances.
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