BlueBay Asset Management CIO: US presidential candidate inflation policy may force the Fed to raise interest rates next year
Mark Dowding, Chief Investment Officer of BlueBay Asset Management, stated that due to the inflation policies of the US presidential candidates, the Federal Reserve may be forced to raise interest rates next year. He expects the US breakeven inflation rate to rise and believes that the US bond yield curve will steepen sharply. Dowding also mentioned that geopolitical tensions will push up energy prices, further exacerbating inflationary pressures
According to the Zhitong Finance APP, Mark Dowding, Chief Investment Officer of BlueBay Asset Management, a top global asset management institution under the Royal Bank of Canada, stated that due to the inflation policy agendas of the two US presidential candidates, the Federal Reserve may have to raise interest rates next year.
Mark Dowding is betting that the US breakeven inflation rate (an indicator reflecting inflation expectations) will further expand. He also predicts that as long-term US bond yields rise faster than short-term US bonds, the US bond yield curve will steepen sharply. He believes that investors will demand higher premiums to compensate for inflation prospects, especially if the Republican presidential candidate Trump wins next month's election.
Mark Dowding said, "I do not rule out the possibility of the Fed cutting interest rates one or two more times. But if we do see Trump showing a clear inflationary bias in policies such as tariffs, immigration restrictions, tightening labor markets, and providing further fiscal stimulus, no one can say whether we might be talking about the Fed raising interest rates instead of cutting them by the middle of next year."
After a series of unexpectedly strong economic data in the United States recently, traders have significantly reduced their expectations of a Fed rate cut. This has led to a rise in inflation expectations, with the US five-year breakeven inflation rate rebounding after falling to the lowest level since 2020 last month. Mark Dowding expects the US five-year breakeven inflation rate to rise to 2.5% in the coming months.
Mark Dowding also believes that the yield spread between two-year and thirty-year US bonds may soar from the current 35 basis points to 150 basis points "when the time is right." In addition, Mark Dowding stated that geopolitical tensions will also push up energy prices. Data shows that due to concerns about escalating tensions in the Middle East, crude oil futures have risen by about 7% this month, exacerbating broader inflation pressures