Chief Investment Officer of Greenwich: Economy will not recession, but the Federal Reserve may increase interest rates!

Vahan Janjigian, Chief Investment Officer of Greenwich Wealth Management, pointed out that despite growing concerns in the market about rising inflation, he remains optimistic about the resilience of the US economy and believes that the likelihood of an economic recession in the near future is extremely low. However, this robust economic performance does not come without its costs, as Janjigian warned that the combination of tariffs and high oil prices is creating a challenging environment for the Federal Reserve. He stated that these factors could lead to an increase in core and overall inflation rates, putting the Federal Reserve in a "more difficult position than before," with the possibility of further rate hikes outweighing the previous market expectation of rate cuts. Behind this viewpoint are multiple factors contributing to inflation, especially the surge in energy costs and shifts in policy expectations. Influenced by factors such as the turmoil in the Middle East and conflicts with Iran, the price of unleaded gasoline in the US has exceeded $4 per gallon, directly raising expectations for core and overall inflation. Janjigian believes that the current economic environment is starkly different from the optimistic expectations at the beginning of the year, and in order to address ongoing price pressures, the Federal Reserve may have to restart rate hikes to stabilize the market. Based on this assessment, Janjigian has begun adjusting his asset allocation strategy by reducing holdings in energy sector exchange-traded open-end index funds (XLE.US) and related stocks like Murphy Oil Corporation (MUR.US) to lock in profits from the recent oil price increases and mitigate potential interest rate risks. While he expects oil prices to eventually fall, he does not foresee prices returning to pre-conflict levels, predicting that oil prices will "stabilize at some point in the $80 to $90 per barrel range." To hedge against the risk of potential economic slowdown, Janjigian is shifting towards defensive high dividend-paying stocks. He is currently increasing positions in Kimberly-Clark Corporation (KMB.US) and Smucker (SJM.US), seeing them as sturdy targets with both risk resilience and high dividend yields, less susceptible to significant impact from economic weakness. He still holds long-term income positions in Verizon (VZ.US) and IBM (IBM.US), even though he is not currently adding to these positions. "In recent years, they have brought me substantial returns," Janjigian said, reaffirming his preference for dividend-paying stocks. Despite facing headwinds from inflation and uncertainty regarding Federal Reserve policy, Janjigian maintains an opportunistic outlook on the current market environment. His strategy of reducing exposure to cyclical energy sectors while increasing positions in defensive consumer stocks reflects his confidence in the economy's ability to withstand recent challenges without succumbing to a recession. It is worth noting that there is significant divergence in Wall Street on the future direction of Federal Reserve policy, with market sentiment in a state of intense flux. On one hand, economists at Goldman Sachs Group, Inc. hold a relatively moderate stance, believing that the Federal Reserve is unlikely to tighten monetary policy in response to external oil shocks alone, and given the tightened financial environment, the possibility of further rate hikes remains very low. Goldman Sachs Group, Inc. even maintains its baseline forecast of two rate cuts within the year. On the other hand, institutions like Nomura Securities express deeper concerns, with analysts pointing out that if inflation remains unable to return to the target range of 2% in the long term, the risk of an economic recession could rise to its highest point in recent years. Currently, the US economy is entering a new phase dominated by cost-driven inflation, and Federal Reserve officials are shifting their stance from "dovish" to "wait-and-see" and even "hawkish." Although Chairman Powell has publicly indicated that rate hikes are not the current preferred scenario, with the OECD raising its inflation forecast for the US to 4.2% in 2026 and unexpected increases in import prices supporting this, the market must now reassess the possibility of long-term sustained high interest rates (Higher for Longer) or even further increases.