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  • JPMorgan's Barry Sees Fed Easing 75 Bps in 2025

JPMorgan's Barry Sees Fed Easing 75 Bps in 2025

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Moomoo News Jan 4 04:30 · 10.1k Views

Jay Barry, JPMorgan's head of global rates strategy, discusses the outlook for the fixed income market and Federal Reserve rate cuts in 2025 on "Bloomberg The Close."

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Transcript

  • 00:00 Is this going to be a good year, you think for Treasury investors?
  • 00:04 Romain, good afternoon and thanks for having me on.
  • 00:05 I, I think it's going to be an OK year for Treasury investors.
  • 00:08 I think as a starting point,
  • 00:10 certainly as you talked about from where we were a year ago, we're not pricing in the Immaculate disinflation we were.
  • 00:16 But there's a pathway for the Fed to continue to lower rates at sort of a more moderate pace than it has been.
  • 00:22 And we envisioned over the course of this year that
  • 00:24 given that backdrop and we are forecasting quarterly cuts through September
  • 00:28 that this should mean there's room for for Treasury yields to decline.
  • 00:31 But I think you need to be careful where you're positioning for lower yields.
  • 00:34 And we think it's more likely the front end,
  • 00:36 which is much more sensitive to policy expectations, has room to outperform
  • 00:40 versus the long end where inflation expectations being anchored at higher levels,
  • 00:44 larger budget deficits and a larger stock of debt outstanding all support long end yields remaining higher for a longer period of time.
  • 00:50 I know it's hard to forecast things because obviously no one really knows what's going to happen.
  • 00:54 But this year seems to be particularly different given the new Congress, given the new
  • 00:59 presidential administration.
  • 01:01 And of course, a lot of talk here about that rise that we've seen in debt servicing levels, deficit levels, and of course, the promise, at least on the campaign trail that that would be addressed this year.
  • 01:10 If it is addressed, that's going to have major implications for where rates go.
  • 01:16 I I think it certainly could.
  • 01:17 And in our baseline,
  • 01:19 we do sort of appreciate what the president-elect has in his platform, But we think the ability to structurally deal with the deficit is going to be limited.
  • 01:26 And hearing, you know,
  • 01:29 Congressman Jeffries on the TV just before this talking about Medicare and Social Security and things like that.
  • 01:34 Mandatory spending is such a big part of the US budget deficit that if you're not dealing with that, it's going to be tough to ring the savings
  • 01:41 that the new administration is talking about, which makes it really tough for us to think that the budget deficit is going to be much smaller than 6% of GDP in the coming years.
  • 01:48 We are looking at live shots of Mike Johnson.
  • 01:50 He'll be speaking in just, he is speaking currently.
  • 01:52 And the House representatives will bring you some of those
  • 01:55 comments over the next few minutes.
  • 01:57 Hey Jay, before we get to that though,
  • 01:59 does all of that mean that 5% on the 10 year could be a reality for this year?
  • 02:04 I would never say it's impossible, Alex, but I think when we got to 5% last fall in the fall of 23, the Fed was threatening to hike from higher rate levels and we were going through an open-ended series of increases to treasury auction sizes.
  • 02:16 Right now, the Feds asymmetric bias is to either ease further at a gentle pace or to stay on hold, not to hike further.
  • 02:22 And while treasury supply is a going concern in the background, we don't see increases coming until much later this year.
  • 02:28 So I would never say never, but I think the bar for getting back to 5% is higher than it was or higher than it's been in the past.
  • 02:33 But Jay, then how do you square something like the ISM manufacturing data that we had right at like a nine month high?
  • 02:38 You had new orders jumping, you had production jumping.
  • 02:40 The only negative there was the was the employment actually rolled over a little bit.
  • 02:44 How do you justify that with yields not moving materially higher?
  • 02:47 Well, I think we've been coming off of three straight quarters of about 3% growth.
  • 02:51 And you're right, I think the employment comes components matter
  • 02:54 first.
  • 02:54 ISM manufacturing is still sub 50
  • 02:56 and the employment components weakened.
  • 02:58 And I think what we've seen in the employment data
  • 03:00 is while there's not really a pickup in layoffs, hiring has slowed and I think it's discernibly slower than it was a year ago.
  • 03:07 So that's the case.
  • 03:08 And the labor markets are looser than it were a year ago.
  • 03:11 It's hard to sort of envision, you know, unless it's sort of
  • 03:14 a labor market that tightens
  • 03:16 10 year yields getting back to the same sort of levels purely from a monetary policy perspective,
  • 03:20 right?
  • 03:20 We've been talking a lot, Jay, about American exceptionalism.
  • 03:24 We're having heading into a year now where we kind of have mapped out what we think the Fed is going to do.
  • 03:29 Does it matter
  • 03:30 that the Fed might be doing things that other major central banks might not be doing and more importantly might not be capable of doing?
  • 03:37 You know, Romaine, we think it's another year of divergent policy, divergent policies globally.
  • 03:42 And you're right, American exceptionalism remains the theme.
  • 03:45 It's hard to identify the vulnerabilities in the US economy.
  • 03:47 And then we've got a new administration that is likely to focus on extending the tax cuts and implementing tariffs elsewhere.
  • 03:53 Globally.
  • 03:54 We do think it means the US continues to outperform.
  • 03:57 And I think it's why we look at the Fed
  • 03:59 easing by another 75 basis points this year.
  • 04:01 It's very different than the euro area where we have the ECB easing to 1 3/4 by the latter part of the summer
  • 04:08 and is very different from say Japan, which is going through its own policy cycle and actually expected to raise rates.
  • 04:12 So with the economy strong and some of the trade policy expected to be directed at rest of world, it does make the case for another year of US exceptionalism.
  • 04:20 We can see that through the lens of policy expectations.
  • 04:22 Alright, going to have to leave it there.
  • 04:23 Jay Berry, head of global rate strategy over at JP Morgan.