Sonal Desai, Executive Vice President and Chief Investment Officer at Franklin Templeton Fixed Income, said the US 10-year Treasury yield is likely to remain above 4%, and that the Federal Reserve may not need further rate cuts unless the economy shows “shockingly weak data.”Desai said the Fed’s policy stance is already accommodative, and that market fears of a growth slowdown are “more sentiment-driven than supported by data.” Despite several rate cuts that have brought the policy rate down to 3.75%–4% from 5.50%, she noted that long-term yields have held firm. “The curious thing is not that 10-year yields haven’t dropped below four, but more that they’re not at 4.50% or a little bit higher still,” she said.Also Read | Ed Yardeni calls US tech sell-off a healthy pullback, keeps S&P 500 target at 7,000
She attributed the persistent yields to fiscal challenges, including potential legal issues surrounding US tariffs, and argued that the Fed’s current stance is looser than neutral, reducing the need for more easing.On the broader economy, Desai downplayed concerns about tariff-related slowdowns. “Tariffs in and of themselves were never a reason to create a growth slowdown,” she said, explaining that with consumption forming 70% of the US economy, and services accounting for most of that, the direct impact of tariffs is limited. Desai expects fiscal expansion measures, such as tax rebates and investment incentives, to provide additional economic support in early 2026.Desai expects the dollar index to remain range-bound, calling its earlier depreciation a correction from an unusually strong position. She added that a court ruling against tariffs could even support the dollar by attracting capital inflows as yields adjust.Also Read | India’s trade odyssey: Navigating FTAs and charting future watersTurning to India, Desai said she finds Indian bonds attractive due to fiscal discipline, index inclusion, and stronger economic fundamentals. “I think actually Indian bonds are attractive,” she said, noting that weaker oil prices are offsetting the rupee’s export-related pressures.On gold, Desai said the metal has “regained a significant position” it is unlikely to lose soon, attributing its strength to a global environment of higher inflation rather than a loss of confidence in the dollar. She dismissed talk of the dollar’s decline as “wildly overblown,” adding, “The dollar does not have a significant competitor in the currency world.”For the full interview, watch the accompanying videoCatch all the latest updates from the stock market here
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