Inflation is 'permanent' and you'll never regain your lost purchasing power, says a Wall Street guru
- Wall Street guru Jim Grant told Fox Business Network inflation is "permanent."
- Grant said the Fed is likely to cut rates later rather than sooner.
Market watchers expecting the US Federal Reserve to cut interest rates soon may be disappointed.
Jim Grant — who's been editing "Grant's Interest Rate Observer" for the past four decades — expects Fed chair Jerome Powell to be cautious as inflation remains above the central bank's target level.
"I think that chairman Powell is still mortified at the Fed's failure to identify the upsurge in inflation that began in 2020 and 21, and the last thing he wants to do is declare a preliminary and premature victory," Grant told Fox Business Network on Tuesday.
In 2021, the Fed described high inflation as "transitory," but price increases continued and hit a four-decade high of 9.1% in June 2022 before easing.
"Inflation is not transitory," Grant told the network. "It is permanent in that you never regain the purchasing power you have lost to inflation."
To tame inflation, the Fed has raised interest rates 11 times since March 2022 to dampen spending and control price rises. It has held rates steady since July.
Grant did not say when he expects the Fed to start cutting rates, but said the move would likely be gradual and "later than the market is hoping" as it holds out for inflation to fall to the region of its 2% target.
The US Consumer Price Index increased 3.1% over the year in November, the Bureau of Labor Statistics said on Tuesday.
Grant's assessment came ahead of the Fed's signal on Wednesday on whether it will keep its pause on rate hikes.
At least one bank — ING — is expecting the Fed to cut rates as early as the second quarter of next year. Meanwhile, Swiss bank UBS is expecting the Fed to cut rates by 275 basis points, or 2.75% percentage points, next year.
The Fed itself expects to cut interest rates by 25 basis points, or 0.25 percentage points, for all of 2024.