Analysis: The Fed's room to cut interest rates this year may be overestimated, as major asset managers go against the trend by shorting U.S. Treasuries

PANews reports that on February 20, Invesco Ltd. and Carmignac’s portfolio managers are shorting U.S. Treasuries. They state that the widespread market expectation of at least two more rate cuts by the Federal Reserve this year contradicts the resilience of the U.S. economy.

Driven by safe-haven demand triggered by stock market volatility and the modest January inflation data last week, U.S. Treasuries experienced a rally, with yields approaching multi-month lows. This bullish sentiment suggests that many investors anticipate that, once signs of labor market weakness appear, the easing of inflation pressures will give the Fed room to significantly cut rates later this year. However, Invesco, Carmignac, and BNP Paribas do not share this outlook. They believe the U.S. economy is too strong to support further substantial easing by the Fed.

On one hand, January employment growth exceeded expectations. Meanwhile, companies are investing heavily in artificial intelligence. Additionally, minutes from the last Fed meeting showed policymakers are cautious about rate cuts, with “several” officials indicating that if inflation remains above the 2% target, rate hikes may be necessary. TS Lombard’s macro strategist told clients this week to bet on fewer rate cuts in the second half of 2026. For Invesco’s head of fixed income strategy Rob Waldner, the baseline scenario is one rate cut this year. However, he noted that given recent strong economic data, “the likelihood of no rate cuts is increasing.” The firm, managing over $2.2 trillion in assets, is reducing its holdings of U.S. Treasuries due to expectations of improved economic growth and inflation above target.