Kevin Nicholson, Chief Investment Officer of Global Fixed Income at Riverfront Investment, joins TheStreet to share his thoughts on what we might see on the inflation-front in 2025.
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00:00So tell me about the Federal Reserve, what do you expect to see from the Federal Reserve in 2025?
00:06I mean, the market seemed to be ahead of the Fed in 2024 and 2025.
00:13What do you expect to see in terms of how low the Fed will go?
00:21Well, first of all, I think in 2025, it's important to remember, I think that the
00:26Fed will be slower to lower than the market expects. And even though the Fed started
00:33their rate cuts in September with a big bang, I think that they're going to now
00:37start to slow those down and be more data dependent, largely because the economic growth
00:43has continued in light of them cutting rates. And so what the Fed doesn't want to do is to
00:51induce further inflation and inflation moving higher. So I think that what we will see in 2025
00:58is that the Fed will ultimately get they will end the year with the Fed funds rate around three and
01:07seven, eight. And so I think that the neutral rate is actually going to be higher than what
01:14the market is actually expecting at the moment. So three and seven eighths would be about a drop
01:23of a full percentage point drop. Yeah, roughly in 2025. And so we've been hearing more chatter
01:32or more fear that inflation is going to roar back in 2025 and become a problem.
01:37What's your thinking on inflation?
01:43Well, as of right now, inflation has been stickier than everyone has thought. And if you add tariffs
01:51into the mix, that means that, you know, goods may end up costing more, especially if there is
02:01retaliation from these other countries that we place tariffs on. So overall, I think that inflation
02:09is going to be more sticky than everyone expects. And therefore, it's going to force yields higher.
02:18And ultimately, we will see the Fed pause.