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Guggenheim's Minerd Rues Bond Market's Rate-Cut Gulf With Dots

Vivien Lou Chen

(Bloomberg) -- The gap between the bond market’s expectations for further rate cuts and the Federal Open Market Committee’s reluctance to signal more to come still has to be bridged, according to Scott Minerd, chief investment officer of Guggenheim Partners, which manages more than $209 billion.

“I’m disappointed by what the Fed has come out with because the market is priced for more action,” Minerd said in a Bloomberg Television interview Wednesday. Minerd had been looking for a 50 basis point rate cut before the Fed’s two-day meeting in Washington.

The Federal Reserve’s second straight rate cut left policy makers divided on the need for further action. St. Louis Fed President James Bullard voted for a half-point cut at this meeting. Meanwhile, traders still see another quarter-point move from the Fed by year-end. Wednesday’s announcement, along with Chairman Jerome Powell’s press conference, sent front-end Treasury yields higher and caused the curve to sharply flatten.

“The market will have to move” further unless the Fed starts signaling before its October meeting that it would be willing to consider a third rate rate cut, he said.

This week’s turmoil in repo markets is raising long-term questions, including the underlying premise of monetary policy that’s based on pegging the fed funds rate to a number, Minerd said. “When you get to the point where the market is sending you a signal, saying there’s not enough liquidity in the system, you have to make a choice between providing more liquidity and expanding the balance sheet, and saying no.”

--With assistance from Scarlet Fu and Tom Keene.

To contact the reporter on this story: Vivien Lou Chen in San Francisco at vchen1@bloomberg.net

To contact the editors responsible for this story: Benjamin Purvis at bpurvis@bloomberg.net, Debarati Roy

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