Kevin Warsh
If confirmed by the Senate in the next few months, Kevin Warsh will take over as chair of the Federal Reserve in May. And a Kevin Warsh–led Federal Reserve may cut interest rates much further than markets are expecting, according to Steven Major, global macro adviser at broker Tradition Dubai.
Major's comments follow some confusion in markets on what the appointment of Warsh might mean for rates, after U.S. President Donald Trump said last week that he is going to nominate Warsh for Fed chair. Formerly a Fed policymaker, Warsh has a history of being worried about inflation, yet Trump has been pushing for steeper cuts.
"I think it's a fairly good assumption that he wouldn't be considered for the role unless he was in the rate-cutting camp," said Major in an interview with Bloomberg TV on Tuesday. "A couple are priced in, but we could have four or five rather than two."
Money markets are currently pricing the chance of a second rate cut in 2026 at about 80 percent, down from last week when a third reduction was seen as a possibility. That comes as Warsh is considered a more hawkish nomination than other candidates Trump was considering.
In the bond market, Treasuries held their ground today, with two-year yields at 3.58 percent and 10-year rates at 4.29 percent.
The prospect of rate cuts leading to a hotter U.S. economy and renewed inflation has led investors to favor shorter-maturity bonds over longer ones, steepening the yield curve. Major, formerly HSBC Holdings Plc's global head of fixed-income research and known as a bond bull, said he wasn't keen on the steepener trade but recommended just buying shorter-maturity Treasuries.
"If you're so sure that front-end yields are going to go down, and you think the curve is going to steepen, just buy the market, just be long," he said. "I'm not convinced about the steepener; I think it's a better trade to just go long into the belly of the curve."
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