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The Fed 'shouldn't use all their firepower immediately,' says CIO

Key Points
  • Chicago Fed President Charles Evans had said this week that even two rate cuts might not be enough in the long run, given low inflation and global trade tensions.
  • Deutsche Bank Wealth Management's global chief investment officer Christian Nolting says the Federal Reserve will cut interest rates twice in the next 12 months, but chances of a four-time rate cut are less.
  • Nolting predicted a 25 basis points cut by the end of July — what he termed an "insurance cut, or pre-emptive cut," in the face of weaker economic growth.
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The Fed shouldn't use all its firepower immediately: Investor

Deutsche Bank Wealth Management's global chief investment officer Christian Nolting predicted the Federal Reserve will cut interest rates twice in the next 12 months, but chances of a four-time rate cut are less.

Chicago Fed President Charles Evans had said this week that even two rate cuts might not be enough in the longer run, given consistently low inflation and global trade tensions.

"The market pricing in four cuts, I think that's a bit too much ... they (the U.S. Federal Reserve) shouldn't use all their firepower immediately," Nolting told CNBC's "Squawk Box " on Wednesday.

Nolting predicted a 25 basis points cut by the end of July — what he termed an "insurance cut, or pre-emptive cut," in the face of weaker economic growth.

While traders are pricing in a 100% probability of an interest rate cut, according to CME's FedWatch Tool, opinion remains divided on how deep the easing will be. 28.7% of traders are currently expecting a more aggressive cut of half a percentage point.

But Nolting proposed that the key to curbing an economic slowdown is whether the Fed, which has a 2% inflation target, is able to increase consumer prices.

The Fed tracks the core personal consumption expenditures price index for monetary policy. That index increased 1.5 percent year-on-year in May and has undershot its target this year.

However, U.S. core consumer prices (CPI) for June — which excludes volatile fuel and food prices — increased the most since January 2018, rising 0.3%. In the 12 months through June, it climbed 2.1%.

The overall CPI edged up 0.1% last month, increasing 1.6% year-on-year in June.

U.S. retail sales data released Monday could be boosting confidence, however. American retail sales saw a 0.4% increase in June, larger than the 0.1% expected by economists polled by Reuters.

This suggests strong consumer spending that could offset recent weak business investment.

Still, investors expect the U.S. Fed to cut interest rates amid the trade dispute with China — believed to have deepened the global slowdown. Lower interest rates stimulate the economy as they reduce the cost of borrowing money to finance investment in various assets.

— Reuters contributed to this story.