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

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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”.

Evacin’s comments come amid debate on Wall Street over the future of the Fed’s rate-cutting cycle amid concerns that if Donald Trump follows through on his plans to impose sweeping tariffs, the US economy could see higher inflation. 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 scenario, pointing to several recent studies pointing to 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 the four planned in September.

According to the head of the federation, Jay Powell December While inflation is moving “sideways”, labor market risks have eased, meaning the central bank will likely take a “more cautious” approach this year. Some officials also indicated that they have begun 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 more 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.”