PIMCO, the giant in bond funds: The Federal Reserve will maintain interest rates unchanged "for the foreseeable future," and may even raise rates

Recently, Dan Ivascyn, Chief Investment Officer of PIMCO, a bond fund giant with a management scale of $2 trillion, stated in an interview with the Financial Times that the Federal Reserve may maintain interest rates unchanged in the "foreseeable future," and does not rule out the possibility of rate hikes.

The core of this judgment lies in the fact that the Federal Reserve needs to wait for further clarity on Trump's policies and U.S. economic data. The Federal Reserve cut interest rates by a total of 1 percentage point last year, and the December meeting reduced the expectation of rate cuts in 2025 from 4 times to 2 times, indicating a cautious shift in policy.

Ivascyn pointed out that if Trump implements large-scale tariff policies, it may exacerbate inflationary pressures in the U.S. in the short term. Although rate hikes are not PIMCO's baseline assumption, Ivascyn emphasized that this possibility "does exist," as recent consumer surveys show a rebound in inflation expectations.

"From an inflation perspective, we are still not out of the risk zone," Ivascyn stated.

Federal Reserve Chairman Jerome Powell noted at the December monetary policy press conference that the risks in the U.S. labor market have decreased, but inflation progress is "stagnant," suggesting that rate cuts this year will be more conservative. Reuters previously reported that some Federal Reserve officials have begun to incorporate Trump's potential policies into their economic forecasting models, further reinforcing a wait-and-see stance on policy.

Hawkish policy expectations have increased volatility in the U.S. Treasury market. The yield on the 10-year U.S. Treasury bond has risen from a low of 3.6% in September last year to above 4.6% currently. Ivascyn revealed that PIMCO is increasing its holdings of government bonds in the high-yield environment, not betting on further rate cuts by the Federal Reserve, but based on the attractiveness of long-term returns.

Ivascyn also warned that the current valuation gap between U.S. stocks and bonds is approaching historical extremes. The forward price-to-earnings ratio of the S&P 500 index exceeds 20 times, while the real yield on the 10-year U.S. Treasury bond is at 2.1%, marking the largest disparity in cost-effectiveness since 2007. "If policy changes push up bond yields, the stock market is likely to come under pressure simultaneously."

This risk is particularly sensitive ahead of the Federal Reserve's meeting on January 28-29. Although the market generally expects interest rates to remain until summer, variables such as the details of Trump's policies and geopolitical conflicts may disrupt the balance. PIMCO advises investors to pay attention to three key signals: whether the U.S. core PCE inflation rate can stabilize below 3%, the impact of election policy games on market expectations, and the alignment between corporate profit growth and borrowing costs