RBC’s Dowding: Fed Rate Cuts Overestimated in 2025

Mark Dowding, the Chief Investment Officer of fixed income at RBC BlueBay, has positioned himself against the prevailing market consensus regarding the Federal Reserve’s interest rate trajectory for the coming year. In a recent interview with Bloomberg Television, Dowding articulated a distinctly hawkish perspective, stating, ‘I actually think there will be fewer rate cuts than a lot of people think next year.’ This forecast places RBC BlueBay’s analysis at odds with the broader market sentiment, which has largely priced in a series of aggressive rate reductions by the U.S. central bank.

Dowding’s assessment is rooted in a fundamental reading of the US economy’s resilience and the Federal Reserve’s institutional mandate. His role as a fixed income CIO necessitates a precise forecast of Treasury yields, which are directly influenced by the Fed’s monetary policy decisions. By projecting a slower pace of easing, Dowding implies that market participants may be underestimating the persistence of inflationary pressures or the strength of economic growth, factors that would compel the Fed to maintain a more restrictive policy stance for longer.

A critical component of Dowding’s argument hinges on the impending leadership change at the world’s most influential central bank. Jerome Powell’s term as Federal Reserve Chair is set to expire in May, introducing a significant variable into the monetary policy equation. Dowding directly addressed the potential dynamics of this transition, remarking, ‘I don’t believe whoever is going to succeed Chair Powell is going to come in as a patsy just to deliver what daddy wants.’ This colorful analogy underscores a belief in the institutional independence of the Fed.

The comment suggests that Dowding expects Powell’s successor, regardless of political pressures, to prioritize the Fed’s dual mandate of price stability and maximum employment over external demands for lower interest rates. This perspective challenges narratives that a new chair might be more amenable to political influence, thereby accelerating the pace of rate cuts. For investors in Treasury markets, this view translates into a scenario where monetary policy remains tighter for longer, potentially keeping Treasury yields elevated compared to current market expectations.

The direct implication of fewer Federal Reserve rate cuts is sustained upward pressure on Treasury yields. If the Fed maintains its policy rate at a higher level than the market anticipates, the yields on government bonds, particularly on the front end of the curve, would likely remain elevated. Dowding’s analysis from his fixed income perch at RBC BlueBay suggests that portfolios may need to be positioned for a ‘higher for longer’ rate environment, contrary to the dominant ‘easing cycle’ narrative.

This contrarian outlook serves as a critical reminder of the uncertainties embedded in monetary policy forecasting. The interplay between a resilient US economy, the Fed’s commitment to its independence, and a forthcoming leadership transition creates a complex backdrop for interest rate predictions. Dowding’s skepticism about the consensus view highlights the potential for market volatility as these dynamics unfold, especially around the May deadline for Powell’s term. For global investors, the path of US interest rates and Treasury yields remains a paramount concern, making analyses like Dowding’s essential for navigating the year ahead.