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When central banks around the world cut interest rates, they justified them on inflation rates slowing. Unfortunately, inflation rates are still elevated. Although inflation in Canada slowed, the bank governor said that people should not expect the Bank of Canada to cut rates at the same pace.
Why will the U.S. Fed, B of C, and the European Central Bank delay the next rate cut?
ECB member Robert Holtzmann did not foresee any interest rate hikes for now. Instead, he expects the next one will take more time. In the Eurozone, inflation rates increased in November to 2.2%. This is up from 2% in the previous month and above the 2% target rate.
In the U.S., Fed Chair Powell announced a rate cut in the December meeting. However, he cited elevated inflation as a reason for slowing rate cuts in 2025. In addition, expectations of tariffs are another risk for inflation. Tariffs are regressive. Instead of increasing government revenue alone, it increases prices for Americans.
Strategy
Investors may hedge inflationary risks by considering energy stocks. Exxon (XOM) and Chevron (CVX) are trading lower since oil prices fell. However, there are signs of an upward trend in energy prices.
Investors outside of the U.S. should brace for a devaluation in their currencies to continue. The Euro, Yen, Canadian dollar, Yuan, and British pound are on a downtrend.
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