Chief Investment Officer of Greenwich: The economy will not decline, but the Federal Reserve may raise interest rates!

Greenwich Wealth Management Chief Investment Officer Vahan Janjigian pointed out that despite increasing market concerns over a rebound in inflation, he remains optimistic about the resilience of the U.S. economy, believing that the likelihood of a recession in the near term is very low. However, this robust economic performance does not come without costs; Janjigian warned that the combined effects of tariffs and high oil prices are creating a challenging environment for the Federal Reserve. He noted that these factors could push both core and overall inflation rates higher, trapping the Fed in a “more difficult situation than before,” with the possibility of further rate hikes instead of the market’s previous expectation of rate cuts.

Behind this view is a confluence of multiple inflationary factors, especially the surge in energy costs and shifts in policy expectations. Due to turmoil in the Middle East and conflicts involving Iran, the nationwide unleaded gasoline price has surpassed $4 per gallon, directly raising expectations for core and overall inflation. Janjigian believes that the current economic environment is vastly different from the optimistic outlook at the start of the year, and to address persistent price pressures, the Fed may have to restart rate hikes to stabilize the market.

Based on this outlook, Janjigian has begun adjusting his asset allocation strategy by reducing holdings in energy sector ETFs (XLE.US) and related stocks such as Murphy Oil (MUR.US), taking profits from recent gains driven by rising oil prices to hedge against potential interest rate risks. Although he expects oil prices to eventually decline, he does not believe they will return to pre-war levels, instead predicting that oil prices will “stabilize somewhere in the $80 to $90 per barrel range.”

To hedge against potential economic slowdown risks, Janjigian is shifting toward defensive high-dividend stocks. He is currently increasing positions in Kimberly-Clark (KMB.US) and SJM (SJM.US), viewing them as resilient and high-yielding assets that are less susceptible to significant impacts from economic weakness. He still holds long-term income positions in Verizon (VZ.US) and IBM (IBM.US), although he has not added to these holdings recently. “Over the past few years, they have provided me with extremely substantial returns,” Janjigian said, reaffirming his preference for dividend-paying stocks.

Despite headwinds from inflation and uncertainty over Fed policy, Janjigian remains opportunistic about the current market environment. His strategy of reducing cyclical energy exposure while increasing defensive consumer stocks reflects his confidence that the economy can withstand recent challenges without slipping into recession.

It is worth noting that within Wall Street, there are still significant disagreements over the Fed’s future policy path, and market sentiment remains highly volatile. On one hand, Goldman Sachs economists hold a relatively moderate stance, believing that the Fed is unlikely to tighten monetary policy aggressively solely due to external oil shocks, especially since the current financial environment has already tightened considerably. They maintain a baseline forecast of two rate cuts within the year.

On the other hand, institutions like Nomura Securities express deeper concerns, with analysts warning that if inflation remains above 2% for an extended period, the lagged effects of policy could increase recession risks to their highest levels in recent years.

Currently, the U.S. economy is entering a new phase dominated by cost-push inflation, with Fed officials shifting their tone from “dovish” to “wait-and-see” or even “hawkish.” Although Chair Powell has publicly suggested that rate hikes are not the current preferred scenario, the market is beginning to reassess the possibility of maintaining high rates (Higher for Longer) or even further tightening, supported by data such as the OECD raising its 2026 U.S. inflation forecast to 4.2% and stronger-than-expected import price increases.