FICC Focus Dissecting Fixed Income With Wellington’s Khurana: Macro Matters
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Feb 13, 2025 Brij Khurana, a Portfolio Manager at Wellington Management, dives into the intricacies of fixed-income markets and Federal Reserve policies. He discusses the potential for unexpected interest rate cuts if economic conditions shift, alongside insights on inflation trends shaping market expectations. The dialogue expands to the domestic labor market and evolving fiscal policies under the new administration. Khurana also touches on the impact of real rates on investment strategies and highlights the changing dynamics in corporate bond trading.
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Inflation Data and Fed Reaction
- Recent CPI data was discouraging for the Fed, with core inflation at its highest in over a year.
- However, the Fed isn't panicking, due to January seasonal effects and likely PCE deceleration.
Potential for More Rate Cuts
- Despite current market pricing, the Fed might cut rates more than anticipated if the economy evolves a certain way.
- Brij Khurana believes the market underestimates the potential for further rate cuts.
Powell's Testimony and Labor Market
- Jay Powell's recent testimony didn't offer any major surprises, echoing previous statements.
- A potential change could be the Fed admitting the labor market contributes to inflation.