Is Waller really a "hawk"? Analyst: Being nominated already indicates a dovish tilt; the Federal Reserve may cut rates up to five times by 2026.

Renowned bond analyst, former Head of Global Fixed Income Research at HSBC Holdings, and global macro advisor at brokerage Tradition Dubai, Steven Major, stated that the rate cuts led by Kevin Warsh’s Federal Reserve may far exceed current market expectations.

After US President Trump said last week he would nominate Warsh to be Chair of the Federal Reserve, there was some confusion in the market over the potential impact of this appointment on interest rates. Warsh previously served as a policymaker at the Fed and is known for his concerns about inflation, while Trump has continuously pushed for sharp rate cuts.

In an interview with Bloomberg TV on Tuesday, Major said: "I think a fairly reasonable assumption is: If he was not in the rate cut camp, he would not be considered for this position. The market has currently priced in about two rate cuts, but we may see four or five instead of two."

Current pricing in the money markets gives about an 80% chance of a second rate cut in 2026, and last week the market briefly thought there was a possibility for a third cut. This is because, compared to other candidates considered previously by Trump, Warsh is seen as more hawkish by the market. His nomination still requires Senate confirmation.

Major is Unimpressed by Curve Steepener Trades

In the bond market, US Treasuries held steady on Tuesday, with the two-year yield at 3.58% and the ten-year yield at 4.29%.

The expectation of rate cuts has led to prospects of a heating US economy and revived inflation, prompting investors to favor short-term bonds over longer-term Treasuries, thus steepening the yield curve.

Major, who previously served as head of global fixed income research at HSBC and is known for his bullish stance on bonds, said he is not optimistic about curve steepener trades and recommends directly buying short-term Treasuries.

"If you are so convinced that front-end yields will fall and believe the curve will steepen, then just buy the market and go long," Major said:

"I’m not very convinced about steepener trades, I think the better trade is to go long in the middle of the curve directly."

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