Going against Goldman Sachs? JPMorgan "dampens the mood": The Federal Reserve is unlikely to cut interest rates significantly!

Caixin February 13 News (Editor: Bian Chun) Morgan Stanley strategists recently advised investors to sell two-year U.S. Treasury bonds as a tactical trade, reasoning that the resilience of the U.S. economic growth outlook will make it difficult for the Federal Reserve to significantly cut interest rates.

Led by Jay Barry, the strategist team wrote in a report: “The U.S. economy remains strong, and even if Kevin Woots (confirmed by the Senate) takes over as Fed Chair, it will be difficult for the Federal Open Market Committee (FOMC) to be swayed by his preferences.”

This view from Wall Street comes just before the release of a key U.S. inflation report on Friday. The report will provide new clues about the Fed’s next steps: any signs of easing inflation pressures could stimulate market demand for short-term, policy-sensitive government bonds.

This week, U.S. Treasury yields experienced sharp fluctuations, driven by tech stock sell-offs and strong U.S. employment data, sparking discussions about what monetary policy actions Woots—nominated by President Trump to be the next Fed Chair—might take.

Traders currently expect the Fed to cut rates by 25 basis points in July and to cut again before the end of the year. Before the release of stronger-than-expected employment data this week, markets had almost priced in a rate cut in June.

During Friday’s Asian trading session, the two-year U.S. Treasury yield rose slightly by 2 basis points to 3.47%, after falling about 5 basis points the previous trading day.

Morgan Stanley expects that the U.S. core CPI, excluding food and energy, will increase by 0.39% month-over-month in January, mainly due to early-year price pressures and the fading impact of the federal government shutdown. Bloomberg Economics estimates a 0.31% increase, in line with market expectations.

“We believe that short-term yields are unlikely to decline significantly from current levels,” Morgan Stanley strategists wrote in the report.

Different Opinions

However, some analysts do not agree with Morgan Stanley’s view.

Hedge fund manager and co-founder of Greenlight Capital, David Einhorn, believes that under Woots’ leadership, the Fed will cut rates much more aggressively than the market currently expects. He said he has bought SOFR (Secured Overnight Financing Rate) futures, expecting that if the Fed adopts a more aggressive rate-cutting stance, related contracts will rebound.

Additionally, Jonny Fine, head of global investment-grade credit at Goldman Sachs, recently forecasted that the Fed will cut rates four times this year, with the first cut in June. Subsequent cuts will be phased in until the end of 2026. He also expects that the U.S. 10-year Treasury yield could fall to 3.5% later this year.