The new Fed chair has been finalized

Our product achieved positive returns last week, with the USD class net value increasing by 10 bps and the HKD class rising by 19 bps. Despite significant volatility in the macro market last week, our portfolio still delivered strong returns, showcasing its resilience.

Last Wednesday’s FOMC decision maintained interest rates at 3.75% with a 10-to-2 vote, in line with market expectations. Powell reiterated the Fed's independence during the post-meeting press conference, stating that it would not be influenced by political pressure. The meeting statement noted that the labor market appears to have stabilized, though inflation remains somewhat high, and overall, the tone was interpreted as hawkish, reducing the likelihood of short-term rate cuts.

Last Friday, Trump nominated Kevin Warsh as the new Federal Reserve Chair. Kevin Warsh previously served as a Fed governor and held a relatively hawkish stance during his term. He opposed excessive quantitative easing in the past, expressing concerns that prolonged low interest rates could lead to asset bubbles; he also emphasized monetary policy discipline, inflation control, and exit strategies. Over the past year, his public statements have shifted, suggesting that Powell could adopt more flexible policies. In an interview last October, he stated that the Fed should cut rates. The market believes that if he takes office, he may support rate cuts in the short term, while maintaining the Fed’s independence over the medium to long term. The US Treasury yield curve steepened significantly again, with short-term yields declining and long-term yields rising. Short-duration bond funds are expected to adapt better to this market style.

Facing the current market full of uncertainties, we will closely monitor macroeconomic data and individual credit quality. We will adopt a defensive strategy while remaining flexible for adjustments. Our goal remains focused on relatively predictable returns, deploying carefully selected credit assets to seek returns within a more stable income framework.

Here’s a recap of last week's macroeconomic data:

1. Durable goods orders – 5.30%, previous value -2.20%, forecast 4.0%

2. Initial jobless claims – 209K, previous value 205K, expected 200K

3. FOMC interest rate decision – 3.75%, previous value 3.75%, expected 3.75%

Next week’s focus: initial jobless claims (February 5), non-farm payroll data (February 6), unemployment rate (February 6)

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