Pimco's Schneider Sees Two Fed Rate Cuts Ahead This Year

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00:00We've seen record highs in equities. At the same time, we're seeing record highs in a safe haven like gold.

00:05And at the same time, we're seeing still records in terms of cash and cash-like holdings in markets right now,

00:12at least as measured by money markets.

00:13Yeah, I think there's two elements here that we have to focus on.

00:16The first one is animal spirits. Risk-taking is still relatively prevalent in terms of the marketplace.

00:22You can see it in the form of tight credit spreads in public markets as well as private markets.

00:25You can see it in the form of equity markets and equity risk premium.

00:28And that's pretty much where we stand right now, is that markets are paving way to an optimistic view

00:35that things are going to be A-OK over the intermediate term.

00:38At the second half, we also have a situation now, especially with the government situation,

00:43where investors are seeking visibility.

00:45And the visibility factor is one where it's confounded by, obviously, lack of data in the near term,

00:50a jobs market which is coming a little bit off the boil, and we have some uncertainty there,

00:55inflationary expectations which are going to trend higher through the remainder of the year,

00:58and simply what is going to be the incremental facet which drives markets higher, equity markets higher,

01:04credit spreads tighter on a go-forward basis.

01:05And so this visibility question becomes really in focus, and unfortunately, the market practitioners,

01:11as well as the monetary policy actors, including the central bank in the United States,

01:16have to react to this without great visibility.

01:18And that's why cash has become a dominant theme over the past year.

01:23Well, will cash remain a dominant theme?

01:25I mean, you go back just, what was it, only two years ago, you were getting 5.5% on a six-month T-bill.

01:31Even last year, I think you were still getting above 4%, and as of right now, we're like at 3.8%.

01:36And it's been a trend line slope downward.

01:39Exactly.

01:40At PIMCO, we expect another two rate cuts for the remainder of this year.

01:43And while the visibility of those rate cuts might be clouded as we get into 2026,

01:47the important thing to recognize is that the comfortability of cash,

01:50the being able to sit in cash and earn the 5% yield, is dissipating quickly.

01:54We need to be able to move out of cash that's going to be trending to that 3% or lower number

01:59in terms of that yield and income, and find ways to preserve that income.

02:02And simply looking at the broader set of fixed income, adding a little bit of interest rate exposure,

02:06even if it's modestly moving out to a one-year type of strategy,

02:10afford you ability to preserve that income, be above that 3% number,

02:14and at the same time, optionality to have some liquidity.

02:17And so we think that there's obviously opportunities to be in well-diversified portfolios

02:21over the intermediate future, despite the lack of visibility from the Fed,

02:24as well as the outlook for the broader economy.