US Fed should start cutting rates in next two meetings: Ritesh Jain, Pinetree Macro

He also expects the US 10-year yield to rise back above 4 percent again.

US Federal Reserve's January policy meeting was devoid of any surprises. The FOMC, which takes decision over fund rates in the US, unanimously voted to keep the rates steady for the fourth straight time. Jerome Powell, the chairman of the Federal Reserve, also refused to say when a rate cut was expected. However, he added that it was unlikely in March meeting.

Veteran fund manager and co-founder of Pinetree Macro, Ritesh Jain, told Moneycontrol that if the FOMC fails to find an opportunity to cut rates in the next couple of meetings, then it will find it hard to start the cycle. He also expects the US  10-year yield to rise back above 4 percent again.

Edited excerpt:

Was the FOMC decision on expected lines? What is your reading of the statement?

The statement is on expected lines. The tightening bias is gone in this statement but they have tempered the market expectation of easing. They are now completely data dependent and if CPI and employment continue to behave then they will move from “hold” to easing but they clearly want to see more evidence of inflation moving in right direction.

Also read: Rate cuts in 2024 would be a mistake, believes this market veteran. Find out why

The Fed says that inflation risk is still there and thus a rate cut is not “appropriate”. When do you think will the appropriate moment come?

When Fed chairman says that “we do not know where neutral rate of interest is” they are admitting that they have got the decision so wrong in past. They want to be completely data dependent and they are saying that data is moving in right direction but they are not seeing it yet.

Chart provided by Ritesh Jain.

US economic data is showing signs of disinflation for last six months and we are close to seeing 2 percent number on CPI so in my mind even March meeting is open to a rate cut. Having said that, I believe that disinflation in US is coming to an end and if they miss the chance to cut the rates in next couple of meetings then they will find it hard to start a rate cutting cycle because then we would be close to US presidential race.

Also read: US Fed keeps rates steady, says ways to go for soft landing: 7 key takeaways

The US bond yields have slid below 4 percent again. Is market reading the decision positively?

The market is reacting more to the quarterly refunding announcement by Janet Yellen and current positioning  than the Fed meeting outcome. I don’t think that US 10-year bond yield will remain below 4 percent for a long period of time and we should start seeing yields inch up in next couple of weeks.

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