The Bond Desk Is Now Pricing In Fed Hikes — Not Cuts
The Saturday paper's most important macro item is on page A2: bond-desk strategists are now openly forecasting that the Fed's next move could be a hike, not a cut. Until two weeks ago, the market was pricing two-to-three cuts by year-end. The pivot is one of the cleanest validations we've seen of the book's positioning all year.
Two quotes anchor the pivot. BNP Paribas chief U.S. economist James Egelhof: "There was earlier a perception among many of my clients that the White House would strongly oppose rate hikes, and that the Fed would therefore be dissuaded from doing them. The president's comment this week supported the repricing of bond markets towards hikes."
And Standard Chartered's Steve Englander: "If Warsh's independence were unquestioned, we would likely be forecasting hikes in late 2026 and into 2027."
What Triggered The Repricing
Three things, all this week:
- The April FOMC minutes — released Thursday — showed officials had retired the rate-cut question and were actively weighing whether to raise instead.
- Warsh's first remarks as chair-designate, sworn in this week. He invoked Alan Greenspan ("with energy and purpose"), which the bond desk read as hawkish framing.
- Trump's quote in the Washington Examiner: "I'm going to let him do what he wants to do." That widened the range of plausible outcomes — the market had previously assumed Trump would block hikes, and that assumption is now gone.
What This Means For The Book
Three positions get reinforced immediately:
Financials (overweight since March). JPMorgan (JPM), Bank of America (BAC), Morgan Stanley (MS), Goldman Sachs (GS). All four benefit from NIM expansion if the curve steepens off a hike scare. Goldman closed at $999.50 on Thursday on the IPO-pipeline tailwind. We're reinforcing all four.
Gold (12% across the book). When the Fed loses credibility on inflation, gold wins. IAU has been doing exactly that all year. The May 22 paper showed real consumer inflation running 14–31% on food categories — the Fed has zero room to cut even if it wanted to. Hold IAU at 12% across every tier.
Short-duration only on the bond sleeve. For accounts that need bond exposure for tax-location reasons, stay short-duration (SHV, BIL, SGOV) only. Long-duration Treasuries (TLT) have lost 5%+ per year in real terms since 2021. A hike-cycle restart would lock in another year of negative real returns on intermediate Treasuries. Don't add duration here.
For Retirees Specifically
If you have a target-date 2030 or 2035 fund in your 403(b) / 401(k), the typical fund has 35–50% bond exposure. That allocation was designed for the 2009–2021 falling-rate regime. It's the wrong allocation for the 2026 hike regime. CalSTRS / CalPERS retirees especially: your pension is already your fixed-income wedge — you don't need more duration in the supplemental book.
Q1 reviews are free, 15 minutes by Zoom. We look at your actual allocation against the hike-regime setup and tell you specifically what to trim, rotate, or keep.