Growing skepticism is emerging among prominent investment firms regarding the Federal Reserve’s anticipated path of interest rate cuts in 2026. Portfolio managers at Invesco and Carmignac are increasingly betting against U.S. Treasuries, citing a resilient U.S. Economy that they believe will limit the Fed’s ability to significantly ease monetary policy this year.
The conventional wisdom in the bond market has been forecasting at least two rate cuts by the Federal Reserve in 2026. However, these managers argue that recent economic data contradicts this expectation. January’s job growth figures exceeded projections and companies are continuing to invest heavily in artificial intelligence, signaling underlying economic strength. This perspective challenges the bullish sentiment that has driven yields on U.S. Government debt to their lowest levels in months, fueled by expectations of easing price pressures and potential labor market weakness.
“It’s increasingly likely there are no cuts” given the strength of recent economic data,” stated Rob Waldner, fixed-income chief strategist at Invesco. The firm, which manages a substantial portfolio, currently anticipates only one rate cut this year as its base case, but is preparing for the possibility of no cuts at all.
This shift in outlook isn’t isolated to Invesco. Carmignac, another major investment firm, shares a similar assessment. Both firms are actively shorting U.S. Treasuries – a move that profits if bond prices fall – based on their belief that the economy is too robust for substantial Fed easing. This strategy positions them against the prevailing market consensus and suggests a potential for increased volatility in the bond market if their predictions prove accurate.
The skepticism extends beyond these two firms. BNP Paribas SA also reportedly shares the view that the economic conditions do not support significant rate reductions. Minutes from the Federal Reserve’s recent meetings have also indicated a cautious approach among policymakers, with several
members suggesting that further rate hikes might be necessary if inflation remains above the central bank’s 2% target. This internal debate within the Fed further reinforces the argument that the market may be overly optimistic about the timing and extent of future rate cuts.
The divergence in expectations stems from differing interpretations of recent economic data. While the headline annual consumer inflation figure for January registered 2.4%, indicating a cooling trend, services prices have simultaneously accelerated. This mixed signal creates uncertainty and complicates the Fed’s decision-making process. Macro strategists at TS Lombard have advised clients to anticipate fewer rate reductions in the latter half of 2026, aligning with the more cautious outlook of Invesco and Carmignac.
The implications of this shift in sentiment are significant for both the bond and stock markets. If the Fed refrains from cutting rates as aggressively as anticipated, bond prices could decline, leading to losses for investors who have positioned themselves for lower yields. Conversely, a more hawkish stance from the Fed could also dampen enthusiasm in the stock market, as higher interest rates tend to increase borrowing costs for companies and reduce overall economic growth.
The current market environment presents a complex challenge for investors. The resilience of the U.S. Economy, coupled with the Fed’s cautious approach to monetary policy, suggests that the era of easy money may be coming to an end. Investors will need to carefully assess the evolving economic landscape and adjust their portfolios accordingly to navigate the potential risks and opportunities that lie ahead. The debate over the future path of interest rates is likely to intensify in the coming months, as economic data continues to provide conflicting signals and the Fed weighs its options.
As of , the S&P 500 showed notable gains, with Omnicom Group leading the way with a 15.36% increase, followed by Deere (11.58%), Texas Pacific Land (10.40%), and Occidental Petroleum (9.38%). However, the index also experienced losses, with EPAM Systems declining by 17.01%, Pool dropping by 14.48%, Booking Holdings falling by 6.15%, and United Airlines Holdings decreasing by 5.88%.
