Rates are set to remain 'for the foreseeable future', says Pimco

Spread the love

Open the White House Watch newspaper for free

The Federal Reserve is poised to keep interest rates on hold “for the foreseeable future” and could raise borrowing costs as central banks await clarity on Donald Trump’s policies, bond fund giant Pimco said.

Dan Evacin, chief investment officer at the $2tn asset manager, said he expected the US central bank to keep rates on hold until there was “more clarity on both the data front and the policy front”.

Debate over the future of the Fed’s rate-cutting cycle amid concerns that Donald Trump follows through on his plan to impose broad tariffs could lead to higher inflation at a time when the U.S. economy has strengthened. Evacin’s comment comes as he swings on Wall Street. More resilient than expected.

“A lot of the policies that are being introduced can be very positive for growth[and]productivity,” Evassin said in an interview with the Financial Times. Long term, but in the short term they lead to some pressure.

Evacin said a price hike was “definitely possible,” though not his baseline, pointing to several recent studies that suggested an increase in consumer price inflation — often a leading indicator.

“In terms of inflation, we’re not out of the woods yet,” he said.

The Fed cut interest rates by a full percentage point last year, but in December officials projected just two quarter-point cuts in 2025, compared with four planned in September.

Fed chief Jay Powell said in December that labor market risks had eased, with inflation moving “sideways”, meaning the central bank would likely take a “more cautious” approach to rate cuts this year. Some officials also indicated that they are beginning to include Trump’s proposed policies in their forecasts.

A more bearish outlook fueled a sell-off in US government bonds, allowing the 10-year Treasury yield to trade above 4.5 percent from a low of 3.6 percent in September.

Ivascyn said Pimco is increasing its exposure to government bonds to take advantage of the higher yields on offer.

“The constructive view on fixed income is that the Fed is not cutting more,” Ivascyn said.

Fed policymakers will meet for the first time this year on January 28-29, but are widely expected to keep rates on hold at least through the summer.

Evacin pointed to higher equity prices, and warned that further moves in Treasury yields could hit stocks.

Relative valuations (between stocks and bonds). . . They are as broad as we have seen in a long time,” he said. “We think stocks can be undervalued in terms of policies that can take a very good yield.”