JPMorgan: Recommends tactical shorting of 2-year U.S. Treasuries, stating that it will be difficult for Waller to push for aggressive rate cuts after taking office

As the selection of the Federal Reserve Chair approaches a conclusion, JPMorgan suggests "selling 2-year U.S. Treasuries" as a tactical trade. The bank expects that, despite Kevin Warsh potentially taking the helm at the Federal Reserve, the room for significant rate cuts will be limited in the context of solid economic fundamentals.

JPMorgan predicts that the core CPI in January may rise to 0.39% month-on-month, higher than the market's general expectation of 0.31%, reflecting the price adjustments at the beginning of the year and ongoing price pressures. Strategists point out that strong economic growth and persistent inflation will limit the downward space for front-end rates, stating that "front-end rates are unlikely to significantly decline from current levels."

The current market expects the Federal Reserve to cut rates by 25 basis points as early as July, with another cut before the end of the year. The yield on 2-year U.S. Treasuries has slightly rebounded to 3.47% ahead of the CPI data release.

However, there are also dissenting voices. David Einhorn, founder of Greenlight Capital, bets that the rate cuts under Warsh's era will exceed market expectations and has purchased SOFR futures to position for a more accommodative policy path.