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The Federal Reserve is poised to keep interest rates on hold “for the foreseeable future” and may even raise borrowing costs as central bankers wait for policy clarity from Donald Trump, bond fund giant Pimco said.
Dan Ivascyn, chief investment officer at the $2 trillion asset manager, said he expected the US central bank to hold rates steady until there was “more clarity on either the data or policy front.”
Ivascyn’s remarks come as debate rages on Wall Street about the future of the Fed’s rate-cutting cycle amid concerns that if Donald Trump carries out his plans to enact sweeping tariffs, it could fuel higher inflation at a time when the US economy is proving more resilient than expected.
“Many of the policies that are being introduced can be very, very positive for growth [and] productivity in the long run,” Ivascyn said in an interview with the Financial Times, adding that there is “a tension between what may make sense in the long term but may lead to some pressures in the short term.”
Ivascyn said rate hikes are “certainly possible,” though that’s not his baseline scenario, pointing to several recent surveys that have signaled a rise in consumer inflation expectations — often a leading indicator.
“We’re not out of the woods yet from an inflation perspective,” he said.
The Fed cut interest rates by a full percentage point last year, but officials in December forecast just two quarter-point cuts in 2025, compared to four in September.
– said Fed chief Jay Powell December that labor market risks have eased while inflation has moved “sideways,” meaning the central bank is likely to take a more “cautious” approach to rate cuts this year. He also noted that some officials have begun to include Trump’s planned policies in their forecasts.
The more unfavorable outlook fueled a sell-off in US Treasuries, keeping the 10-year Treasury yield above 4.5 percent from a low of around 3.6 percent in September.
Ivascyn said Pimco is increasing its exposure to government bonds to take advantage of the high yields on offer.
“The constructive view on fixed income is not based on the Fed cutting more from here,” Ivascyn said.
Fed policymakers meet for the first time this year on January 28 and 29, but are expected to keep rates on hold until at least the summer.
Ivascyn also pointed to elevated stock values and warned that further increases in Treasury yields could hit stocks.
“Relative estimates[between stocks and bonds]. . . they’re about as wide as we’ve seen in a long time,” he said. “We think policies related to increasing yields can also reduce inventories.”
