Bond fund giant Pimco said the Federal Reserve is prepared to keep interest rates on hold "for the foreseeable future" and may even raise borrowing costs as central bankers await clarity on Donald Trump's policies.
Dan Ivascyn, the asset manager's chief investment officer, said he expects the Fed to keep interest rates steady until "there's more clarity on the data or policy."
Ivasin's comments come as a debate unfolds on Wall Street over the future of the Federal Reserve's rate-cutting cycle, amid concerns that if Donald Trump's plan to impose sweeping tariffs could intensify at a time when the U.S. economy has already proven itself Inflation. More resilient than expected.
"Many of the policies that are being put in place could be very, very positive for growth (and) productivity in the long run," Ivasin told the Financial Times in an interview. He added that "there is a gap between sensible policies." Tensions”. In the long term, but in the short term there will be some pressure.”
Ivasin said a rate hike was "certainly possible" although not in his baseline scenario, pointing to several recent surveys showing rising consumer inflation expectations - typically a leading indicator.
"From an inflation perspective, we're not out of the woods yet," he said.
The Fed cut interest rates by a full percentage point last year, but officials in December forecast only two and a quarter percentage points in 2025, down from a forecast of four percentage points in September.
Fed Chairman Jerome Powell said in December that labor market risks have subsided and inflation is moving "sideways," meaning the Fed may take a "more cautious" approach to interest rate cuts this year. He also noted that some officials have begun incorporating Trump's policy plans into their forecasts.
The more hawkish outlook intensified a sell-off in U.S. government bonds, causing the 10-year Treasury yield to rise above 4.5% from a low of around 3.6% in September.
Ivasin said PIMCO has been increasing its exposure to government bonds to take advantage of their high yields.
"A constructive view on fixed income does not depend on the Fed cutting rates further from now on," Ivasin said.
Federal Reserve policymakers will hold their first meeting of the year on January 28-29, but are widely expected to keep interest rates on hold, at least until this summer.
Ivasin also pointed to rising stock market valuations and warned that further gains in Treasury yields could hit stocks.
"Relative valuations (between stocks and bonds) . . . are the widest we've seen in a long time," he said. "We believe that policies that may push yields higher may also push stocks lower."