Overview
The bond manager’s investment chief predicts the US central bank will hold off on making cuts until it has more information about Trump’s policies. According to bond fund behemoth Pimco, the Fed is prepared to leave interest rates steady “for the foreseeable future” and may even raise borrowing costs while central bankers wait for clarification on Donald Trump’s objectives.

Market Commentary on Fed Rate Cuts
According to Ed Yardeni, President of Yardeni Research, this strategy is anticipated to maintain the dollar’s strength due to significant inflows into US capital markets and competitive bond yields. Although market optimism was bolstered by Fed Governor Christopher Waller’s recent remarks regarding inflation approaching the target level, Yardeni rejected the possibility of further rate decreases in the near future.

The chief investment officer of the $2 trillion asset management, Dan Ivascyn, stated that he anticipated the US central bank to maintain stable interest rates until there was more clarity either on the data front or the policy front.

Ivascyn’s comments coincide with a Wall Street discussion concerning the Fed’s rate-cutting cycle’s future due to worries that increased inflation could be exacerbated at a time when the US economy has shown more resilient than anticipated if Donald Trump implements his plans to impose sweeping tariffs. According to Ivascyn, several of the new regulations have the potential to have a very favorable long-term impact on productivity and growth. He also mentioned that there was a conflict between what would make sense in the long run and what might put some strain on things in the short term.

Ivascyn cited a number of recent polls that indicated a rise in consumers’ inflation expectations, which is sometimes a leading indication, to support his claim that rate hikes were undoubtedly feasible but not in his baseline scenario. Pimco has been boosting its exposure to government bonds in order to capitalize on the strong yields available, according to Ivascyn. Further, Ivascyn said that a positive outlook for fixed income is not based on the Fed making further cuts.

Fed unlikely to alter Rate Cuts
In December, Fed chief Jay Powell stated that inflation was trending sideways and labor market concerns had decreased, indicating that the central bank would likely be more cautious about rate reduction this year. Additionally, he pointed out that some officials have started to factor Trump’s proposed policies into their projections.

Fed policymakers are anticipated to hold off on raising rates until at least the summer when they meet for the first time this year on January 28–29. The Federal Open Market Committee is unlikely to lower interest rates on January 29. According to the CME FedWatch Tool, fixed income markets presently forecast a 99.5% chance that interest rates will remain unchanged at their current level of 4.25% to 4.5%. Interest rate cuts in March or May are still feasible, though. At one or both of those meetings, the odds are about equal.

According to the employment data for December, job creation has remained strong. The job market remains strong, according to Federal Reserve Governor Lisa Cook, who stated this on January 6. The unemployment rate is still low, and Americans are generally earning wages that are increasing more quickly than inflation. Although it was made a few days prior to the latest jobs report, this remark largely echoed its analysis.

Perhaps the strength of the labor market reduces the pressure on the FOMC to lower interest rates. However, December’s CPI inflation statistics, which was released in January, revealed that inflation was still lower than some had anticipated. In the end, that might help the FOMC lower rates in 2025 if inflation seems to be on track to reach 2% annually. Numerous measures of inflation are more in line with an annual rate of 3%.

Treasury Yield to increase in future
The 10-year Treasury yield is now trading at 4.5% after falling to about 3.6% in September due to a sell-off in US government bonds fueled by the more hawkish outlook. Ivascyn also cited high equity valuations and cautioned that stocks would be impacted by a further increase in Treasury yields.