It is set to keep rates steady for the “foreseeable future”, Pimco says

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The Federal Reserve is poised to keep interest rates on hold “for the foreseeable future” and may even increase borrowing costs, as central bankers wait for clarity on Donald Trump’s policies, a bond fund giant has said. Pimco.

Dan Ivascyn, managing director of the $2tn fund, said he expected the US central bank to keep interest rates steady until there was “greater clarity on the data front or on policy.” .

Ivascyn’s comments come as discussions continue on Wall Street about the future of the Fed’s rate cut amid concerns that if Donald Trump follows through on his plans to raise interest rates, it could trigger high inflation at the time the American economy proved itself. more active than expected.

“A number of emerging trends can be very good for growth (and) productivity over time,” Ivascyn said in an interview with the Financial Times, adding that there is “a conflict between what might It doesn’t make sense in the long term, but it leads to some stress in the short term”.

Ivascyn said that a rate increase “could be possible”, although it was not his main position, pointing to several recent surveys that showed a rise in consumer price expectations – usually as a leading indicator.

He said: “We are not out of the woods yet from an inflation perspective.

The Fed cut interest rates by a full percentage point last year, but officials in December forecast just two quarterly cuts in 2025, compared to four expected in September.

Fed chief Jay Powell said December that the risks of the labor market were reduced, while inflation was moving “on the sidelines”, which means that the central bank may take “more caution” to reduce rates this year. He also noted that some officials have begun to include Trump’s proposed policies in their early forecasts.

The hawkish outlook fueled a sell-off in US government bonds, which left the 10-year Treasury yield trading above 4.5 percent from a low of 3.6 percent in September.

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

Ivascyn said: “A constructive view on unlimited income is not intended to reduce the Fed further.”

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

Ivascyn also pointed to high equity valuations, and warned that another move higher in Treasury yields could lower the stock.

“Relative values ​​(between stocks and bonds) . . . “It’s about as wide as we’ve seen in a long time,” he said. “We think that in terms of strategies that can take very high yields, they can also lower the stock.”