Ruben Hovhannisyan, TCW’s fixed-income generalist portfolio manager, joins Brad Smith on Wealth! to outline his view that the Federal Reserve will accelerate its rate cuts which will benefit treasury yields more than the market is currently pricing in. On the stronger-than-expected September jobs report, Hovhannisyan says, “Generally speaking, a fairly strong report on multiple fronts, although, if you wanted to pick a weak data point, you could look at average weekly hours, which declined aggregate hours. Also ticked down slightly. Or you could look at temporary help employment, which is often viewed as a leading indicator, and that continued to decline. But generally speaking, again, a strong report.” “We should recognize that this is a series that has been very volatile, subject to seasonal adjustments and many other adjustments in the past. Let’s not forget that a month ago, we learned that a nonfarm payroll creation over a one-year period was revised down by about 30%. So while should not be ignored, it should also be taken with a grain of salt or, you know, a fistful of salt. And more importantly, it should also be put in the context of the overall market.” He adds, “When you look at the bigger picture … broader labor market indicators, you see, they paint a picture of certainly a weak and weakening labor market.” On how the jobs report could affect the Federal Reserve’s next move in the ongoing rate easing cycle, Hovhannisyan says, “We don’t think that one unemployment report should change where the neutral rate is. The neutral rate is impacted by many factors. Most of them are secular in nature. They’re based on long-term trends… That being said, we do see repricing in the rates market. So the investors seem to believe that this economy is growing stronger, and that may require less rate reduction.” As the market digests the latest economic data, Hovhannisyan says, “We’ve thought and continue to think that the economy is continuing to decelerate, and that deceleration will become more pronounced towards the end of the year and early 2026. With that in mind, we think that the Fed, at some point, will have to actually accelerate cuts, which is not something that the market is telling you today, but we think the Fed will probably have to accelerate cuts because let’s not forget that even after 50 basis point cuts, we’re still in a fairly restrictive territory.” “We think there is a little bit of inconsistency between where the economy is and where the rates are, which is still at a fairly restrictive territory, about 200 basis points, at least, higher compared to where the neutral should be. So we are overweight. We do think that it warrants to be overweight at this point, especially in the front-end curve. You know, the two-years and five-years which will benefit more from faster rate cuts than what’s being priced in.”
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