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Dow Jones NewsAug 21, 2:05 PM UTC
DJ Fed's Powell Is Unlikely to Commit to Rate Cut Just Yet -- Interview
By Emese Bartha
U.S. Federal Reserve Chair Jerome Powell will walk a fine line at a speech on Friday as he balances signs of an economic slowdown against concerns about rising inflation, said Roman Gaiser, head of fixed income for EMEA at Columbia Threadneedle Investments.
Powell is expected to open the door to a possible 25-basis-point interest-rate cut in September when he speaks at the Fed's annual Jackson Hole Symposium.
Gaiser expects his comments will be cautious and that he will avoid precommiting to a rate reduction as soon as next month.
Powell is in a "tough spot" as the U.S. faces an unclear economic outlook, he said. President Trump has also exerted pressure on the Fed to cut interest rates in recent months.
"I think he will try to walk that fine line, that balancing act of not looking like he is giving in to pressure from President Trump," he said.
Investors see a high chance of a rate cut next month, although this isn't certain, particularly given recent higher-than-expected U.S. producer price data.
U.S. money markets currently price a nearly 80% probability of a September rate reduction, LSEG data show.
Columbia Threadneedle expects a 25-basis-point rate cut in September, based on signs of the U.S. economy slowing. However, the fund manager is "not quite sure" about the need for a follow-up rate cut this year, Gaiser said.
By contrast, investors are more convinced, with U.S. money markets fully pricing in two 25 basis-point rate reductions by year-end, according to LSEG data.
The recent steepening of the U.S. government-bond yield curve--where the gap between yields on short- and long-dated Treasurys widens--"is a sign of caution that investors show towards the U.S.," he said.
Investors' wariness towards U.S. assets has helped to boost eurozone assets, as well as an improved economic outlook in Europe.
Columbia Threadneedle has seen renewed interest in European assets compared to a few months ago. This has benefited stocks in particular, as well as fixed income albeit to a lesser extent.
"Some of these flows are related to policies in the U.S., but on the other hand, some of the prospects for Europe have improved," Gaiser said.
Better growth prospects partly reflect plans for substantial fiscal expansion in Germany, as well as increased defense expenditure in Europe, although fiscal challenges remain, he said.
Within fixed income, corporate bonds have benefited from better demand than government bonds, he said. The funding situation in the corporate bond market is favorable currently, with yields having fallen over the past year.
While a Fed rate cut in September looks very likely, the European Central Bank has no need to rush to cut interest rates. This is due to an improving economy, while eurozone headline inflation was at 2% in July, in line with the ECB's target.
"I'm not quite sure that more [ECB] cuts are needed to stimulate the economy," Gaiser said.
Columbia Threadneedle Investments had 557 billion euros ($648.93 billion) assets under management as of June 30, 2025.
Write to Emese Bartha at emese.bartha@wsj.com
(END) Dow Jones Newswires
August 21, 2025 10:05 ET (14:05 GMT)
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