Investing.com -- The potential scale of US interest-rate cuts in 2026 is being underestimated by the market, according to the co-manager of a macro hedge fund that saw a 76% increase last year. According to Bloomberg, Gao Bin, of Kaifeng Investment Management, expects President Donald Trump to nominate a dovish Federal Reserve chair next year, as economic conditions soften due to a widening trade war. Kaifeng oversees approximately $1.3 billion.
The outlook for interest rates in the current year is unclear due to uncertainty surrounding Trump's tariff threats and the potential impact on inflation. Gao, who also serves as the CEO of the Hong Kong unit of the Shenzhen-based fund manager, stated that unless inflation occurs, rate cuts are unlikely this year. However, he believes that regardless of inflation trends, Trump would push for rate cuts next year in response to a weakening economy.
Kaifeng is increasing its bullish bets on Chinese risky assets, primarily equities, due to an improving internal and external environment. The firm expects two-year US rates to fall below one-year rates as a hedge against the risk of broader trade confrontations causing a global recession.
Data released on Wednesday showed a broad rise in US inflation. Fed Chair Jerome Powell referenced the data, indicating that the central bank has made significant progress in controlling price growth but still requires further effort. Following the data's release, the S&P 500 initially declined, then rebounded, while Treasury yields and the dollar rose. Market expectations for further Fed rate cuts this year have been reduced.
Despite this, futures markets are predicting fewer than two quarter-points of rate cuts by December, and only about one more quarter-point decrease in 2026. Gao, along with Kaifeng founder Wu Xing, supervise a $50 million China-focused macro hedge fund. The fund achieved substantial gains last year, partly due to active futures trading in anticipation of US rates moving within a range and higher Japanese rates.
On Thursday, Trump instructed his administration to propose reciprocal tariffs on a country-by-country basis, to compensate for not only direct levies on US goods but also non-tariff barriers. This followed the imposition of 10% import taxes on Chinese goods and plans to impose 25% duties on all steel and aluminum imports next month. Gao stated that the unpredictability of Trump's threats makes it difficult to predict the inflation path for this year. He added that while the US economy is currently strong, the trade war could challenge its strength in the coming year.
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