A long-standing market bull is dampening its outlook due to inflation.
Federated Hermes’ Phil Orlando believes the Federal Reserve will hike rates six times over the next two years to curb massive price hikes from vehicles to housing to groceries.
“We expect the Fed to raise two quarter points in the second half of next year and perhaps another four quarter points in the course of the ’23 calendar,” the company’s chief equity strategist told CNBC “Trading Nation” on Wednesday.
Orlando, with over $ 634 billion in assets under management, is concerned about the latest inflation figures. Both consumer spending and the CPI will accelerate rapidly in three decades.
The Department of Commerce reported last week that the prices of personal consumption expenditure, or core PCE, rose 4.1% year over year in October. The inflation indicator that the Fed relies on most includes neither food nor energy.
The consumer price index, or CPI, also rose rapidly in October. The Department of Labor’s index, which measures what consumers pay for goods, includes food and energy.
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“Given the surge in inflation we’ve seen recently, I honestly wouldn’t be surprised if the Fed accelerated this rate of slowdown,” he said. “As soon as the tapering is done, we expect some rate increases.”
That could surprise Wall Street, according to Orlando.
“The Fed, to some extent, has played a good game with the Biden administration, I think, on temporary or transient inflation,” he said.
However, Orlando believes the Fed understands the scale of the problem. He cites the decision to start tapering this month.
“They will be downgrading housing at a reasonable pace over the next two years or so to try to control inflation and see if they can get this ghost thing back in the bottle,” he said.
In an environment of rising interest rates, Orlando is particularly fond of energy, commodities and industrial stocks as they are able to offset rising business costs, raise prices, and increase margins.
“We’re trying to invest in the companies that are handling this situation reasonably well,” said Orlando.
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