The world's largest listed hedge fund group, Man Group, has warned that the Federal Reserve may have to resort to quantitative easing (QE) to suppress long-term borrowing costs if bond markets begin to question the independence of the next Fed chair. Kristina Hooper, the group's chief market strategist, pointed to the 2022 UK crisis as a cautionary tale—when markets lost confidence in then-Prime Minister Liz Truss's economic policies, triggering a sell-off in UK government bonds. Hooper noted on LinkedIn that UK borrowing costs have since remained higher than most G7 economies, underscoring the importance of credibility among policymakers. She added, "If the next Fed chair is perceived as lacking independence and prioritizes lowering long-term rates, QE may become the only viable tool to achieve that goal."
Notably, the yield on the 10-year US Treasury has risen over 20 basis points since October lows, defying expectations as the Fed is widely anticipated to cut rates by 25 basis points this week. President Trump recently hinted that he is close to finalizing a replacement for current Chair Jerome Powell, whose term ends in May next year. Kevin Hassett, director of the White House National Economic Council, is seen as the frontrunner. Market observers view Hassett as aligned with Trump's preference for rate cuts. Earlier this month, Trump stated that the Fed chair selection was "largely decided" and named Hassett as a "potential candidate." However, Hassett cautioned this week that pre-announcing rate policy for the next six months would be irresponsible.
Hooper emphasized that while equity investors typically favor loose monetary policy, bond investors prioritize fiscal sustainability and Fed independence. She warned, "Cutting the federal funds rate doesn’t guarantee lower long-term rates—it might even backfire." Gregory Peters, co-chief investment officer at PGIM Fixed Income, noted last week that Treasury yields have climbed since Hassett emerged as a leading candidate. Peters, who also serves on the US Treasury Borrowing Advisory Committee, said growing concerns over Fed independence remain a key market worry.
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