On February 13, as the nomination of the Federal Reserve Chair was nearing completion, JPMorgan Chase suggested "selling 2-year U.S. Treasury bonds" as a tactical trade. The bank anticipated that although Kevin Warsh would be appointed to head the Fed, given the solid economic fundamentals, his room for pushing for significant interest rate cuts would be limited.
JPMorgan Chase predicts that core CPI may rise to 0.39% month-on-month in January, higher than the market consensus of 0.31%, reflecting the continued pressure from price adjustments at the beginning of the year. Strategists point out that strong economic growth and sticky inflation will limit the downside potential of front-end interest rates, and "front-end interest rates are unlikely to fall significantly from current levels."
The market currently expects the Federal Reserve to cut interest rates by 25 basis points as early as July, and then cut them again before the end of the year. The 2-year Treasury yield rose slightly to 3.47% ahead of the CPI data release.
However, there are also dissenting voices. Greenlight Capital founder Einhorn is betting that interest rate cuts during the Warsh era will exceed market expectations and has already bought SOFR futures to position for a more accommodative policy path.
