The next step for the Federal Reserve is to raise interest rates? Legendary investor: very likely!

According to the latest news from Zhitong Finance, legendary investor and founder of asset management company Research Affiliates, Rob Arnott, stated that with the risk of inflation rebound approaching the Federal Reserve, rate hikes this year are not far off. In an interview, this legendary investor predicted that by the end of this year, the US inflation rate will reach 3.5%-5%. He pointed out that the higher this number, the lower the possibility of a rate cut cycle. Arnott said: "(A 5% ) inflation rate will be seen as a real blow, which will prevent the Federal Reserve from cutting rates and may encourage them to raise rates again."

The market is closely monitoring the inflation situation month by month, and investors are eager to see the inflation rate drop to a sufficiently low level to prompt the Federal Reserve to adjust its policies. Currently, the Federal Reserve has delayed its rate cut timetable in its latest forecast, insisting on the need to see clear signs of anti-inflation in the data.

However, Arnott mentioned that although the May Consumer Price Index (CPI) report was lower than expected, it may not be so easy to achieve a sustained cooling from now until the end of the year. Due to the favorable fading of base effects, he explained: "The inflation rate in the last few months of last year was very low, abnormally low, so the upward pressure on inflation is more likely to be greater than the downward pressure."

According to the latest quarterly dot plot, the Federal Reserve expects to cut rates only once by 25 basis points this year, lower than the market's expectation of two to three times. The central bank has been criticized for relying too much on data in the decision-making process.

If inflation eases further, the economy may soften enough to prove that it is reasonable for the Federal Reserve to ease monetary policy, but Arnott is not entirely convinced that a rate cut will be of much help in boosting the economy.

He said: "In my opinion, what role can it play other than boosting market enthusiasm." He was referring to the bull market, which has been driven by the prospect of interest rate cuts. He added: "I believe the Fed's goal is to stimulate bubbles, not the economy."