Investors warned to account for US Fed pausing rate cuts in H1 25

Investors have been warned to consider the possibility that the US Federal Reserve won’t further ease interest rates in the first half of 2025 and to adjust portfolios accordingly.

DeVere Group chief executive, Nigel Green, said while markets continue to hope for the third consecutive rate cut of 2024, a combination of “persistent inflationary pressures, a resilient US labor market and fiscal policies expected from the incoming Trump administration” may dash those hopes.

This comes as the US Consumer Price Index (CPI) for November jumped to 2.7 per cent in the last 12 months, up from October’s figures, and core inflation continues to sit at 3.3 per cent. US unemployment continues to remain at historic lows and wage growth could keep inflation consistent into 2025.

“We’re entering a phase where inflation remains a persistent threat, and interest rates are unlikely to come down as quickly as markets had hoped,” Green said.

“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.

“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.”

Green recommended investors consider four key themes to ensure their portfolios are well prepared for what 2025 will bring: bonds, equities, diversification into inflation hedges, and minimising overexposure to risk.

“While higher rates have battered bond prices over the past two years, fixed income assets are now presenting substantial value. Long-term government and corporate bonds, in particular, can offer stable returns as inflation expectations moderate and investors look for safer havens,” he said.

“Investors should focus on companies with strong balance sheets, stable cash flows, and proven pricing power. These businesses are better positioned to weather an environment of higher borrowing costs and inflation.

“Assets such as gold, Bitcoin and commodities remain essential tools for portfolio protection. In addition, dividend-paying stocks can provide consistent income streams to offset the erosion of purchasing power caused by inflation.

“Sectors reliant on cheap borrowing, such as tech and growth stocks, could face increased headwinds if rates remain elevated. Investors should reassess their exposure and prioritize sectors that benefit from inflation and steady economic demand, such as energy, utilities, and healthcare.”

“Strategic investors will seize this moment to reposition themselves for the new reality—a reality where caution, vigilance, and adaptability are paramount.”