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Stocks Under Pressure as Investors Reassess Fed Outlook

Market Movers: The Opening Bell

January 21, 2026

Video Transcript

Let's get to the big story.

Breakdown in midweek trade.

We are looking at US stock futures lower, and this does come after the major equity averages tumbled in the previous session to mark their worst day since October of last year.

And this did come as Trump's push for US control of Greenland reignited global trade war fears and Japan's long-term bond yields hit record highs on election-driven tax cut worries as global yield.

Rose and that Jay Powell is expected to attend Supreme Court oral arguments today in a case involving the attempted firing of that governor Lisa.

Now Powell's planned appearance does come as the Supreme Court could also rule as soon as next week on a separate case challenging Trump's terrorists.

Now joining me this morning here at the New York Stock Exchange is that the portfolio manager.

Of total return bond fund with Columbia Thread Needle.

Well, good morning.

Thank you so much for joining me.

Good morning.

Awesome to be here.

Yes, and of course, first and foremost, a lot has happened so far as we kick off 2026, but I do want to start out by looking at global fixed income, especially given the market action not just in the US but also in Japan yesterday.

So what does diversification look like now?

Yeah, fantastic.

So let me start with the credit side of the story.

Credit has been really well behaved.

If you look at both investment grade and high yield corporate credit spreads.

They've been very, very stable.

There's not been a lot of volatility.

They're a little bit wider over the course of the past couple of days, but really reflecting the key source of uncertainty, which is what's going on in the interest rate market.

A lot of volatility in interest rates, very little volatility in credit spread so far, really reflecting the fact that on the corporate side, balance sheets are still quite healthy at the start of the year.

And you mentioned the central banks, which we are paying attention to here in the US and of course there's been a lot of volatility when it comes to policy.

So given what we're seeing right now, how would you characterize the Federal Reserve strategy.

The Fed's strategy was pretty clear over the course of the last 18 months.

We're trying to add some accommodation to the economy, really reflecting the fact that the labor market was slowing.

We've now come to a point where they're comfortable taking a pause.

It's anybody's guess as to how long that pause is going to be this year, but it's clear here at the start of The year that the pressure on them to cut rates isn't really there and so the interest rate market is now starting to price in a pretty wide range of outcomes.

Some of the volatility we're seeing in rates is reflective of that, reflective of the fact that the underlying growth story is a little bit better here at the start of the year than markets were anticipating maybe even 6 months ago.

Yes, and of course we're paying attention to growth here in the US.

We will be getting revised GDP figures, but we saw that bump up at the end of last year, at least for the first reading of 3rd quarter GDP here in the US.

But given everything that's happening globally as well as here in the US, how do you see growth moving in 2026?

The growth was unusually high, I would say last year, a little bit over 2% for the full year.

It's likely that we are on track for slightly lower growth this year.

I don't think anything is falling out of bed, but somewhere between 1.5% and 2% is a really good bet.

The key issue in the economy isn't really growth, and that's what markets have been paying attention to.

Number 1, it's inflation, and inflation has been really well behaved, coming down over the course of the last 6 to 12 months.

Number 2, it's the labor market, and the labor market has really been on the weak side.

That's been the source of concern.

How the labor market resolves itself this year is really the number one issue top of mind in fixed income markets.

And speaking of which, what are your forecasts when it comes to those key numbers, those data points surrounding the labor market as well as inflation this year really, really tough.

I have a little bit more confidence on inflation.

The inflation story really kind of zooming out over the course of the past 3 years has been really good.

The Fed has done a very decent job in terms of bringing inflation down without triggering a recession as a cost of that decline.

Inflation right now is somewhere between 2.5% and 3%.

It's not quite at the Fed's target, but it's pretty well behaved and pretty close enough.

I think that decline continues this year towards that 2% level.

I don't think we quite get to 2%, but the direction of travel is marginally lower when it comes to the labor market.

Huge question marks.

Extraordinarily difficult, I think, to make a forecast at the moment.

What we know is hiring is very low, so all the growth we've had this year hasn't really translated into hiring.

We also know that we have a much smaller working population because immigration has declined.

The two have netted out in the form of the unemployment rate rising about 1% point right around 4.5%.

I think it moves slightly higher this year, and I think the Fed is going to have to do a little bit more work to make sure it doesn't accelerate.

Which would be a bad thing for the economy and I do want to ask your perspective when it comes to the tension between the Federal Reserve and the White House right now today we will be zooming in on that hearing for Lisa and Powell will apparently be in attendance, but what do you make of this and how do you see all of the shaking out.

Yeah, I mean, it's it's an unprecedented period for the Fed.

We have both the White House challenging the Fed in terms of being able to replace sitting governors, the Lisa Cook case.

We also have a new Fed chair in the wings somewhere with that announcement coming, you know, imminently.

That's a very difficult transition for the Fed.

The Fed is clearly being politicized and there's a lot of pressure from the White House.

Two key things I think are really important.

Number one, there's great consensus on the Fed at the moment that there isn't a need to cut rates, at least in the short term.

Call it the next 3 to 6 months.

It's going to be really tough to challenge that consensus even with a new chair coming in.

That's one.

That's a short term issue.

The longer term issue is to what extent will Congress and particularly the Senate step in and provide some degree of cushion around the Fed to protect that independence.

In the absence of that, the White House has a lot of license to keep pushing over the next couple of years and effectively remake the Fed make it a lot more political.

That would be very toxic for risk assets, very toxic for markets.

Given that outcome, given that risk, I think there's going to be a lot of pushback against what the White House is trying to do.

And finally, before I let you go, we can't have a conversation without talking about uncertainty, tariff risks as well as geopolitics.

So given all this uncertainty we saw stocks fell off, the US dollar fell off yesterday, and we also saw a global bonds lower.

So what do you expect to see when it comes to bonds, specifically the tenure?

Yeah, when I think about the lessons of 2025, when we have a source of geopolitical risk or anxiety that's coming from the White House.

Tariffs in April of last year were a really good example.

What foreign investors tend to do is hedge the currency risk, taking the dollar lower.

There isn't necessarily much selling of US assets, but clearly the release valve is a weaker dollar.

I think that's what we're seeing.

At the beginning of this year in terms of the 10 year yield, the 10 year yield is getting to levels that I think are quite attractive.

4.5% on the tenure is definitely within reach.

5% in the 30 year is definitely within reach.

I think from an investor's perspective these have got to be quite attractive levels to lock in a little bit of income against risk assets that are quite richly valued at this stage.

Well, Ed, we will have to leave it there, but thank you so much for joining me and thank you so much for sharing all of your insights.

Thank you.

Thank you.

U.S. markets opened under pressure as stock futures fell, setting a shaky tone for investors. The decline was driven in part by renewed geopolitical concerns, including comments from President Donald Trump about acquiring Greenland, which reignited fears of a broader global trade conflict. Overseas, anxiety was also building in Japan, where long-term bond yields climbed to record highs amid expectations of tax cuts following recent elections.

Against this unsettled backdrop, attention has also turned to developments at the Federal Reserve. Federal Reserve Governor Lisa Cook has come under scrutiny, while Chair Jerome Powell is preparing to make arguments before the Supreme Court regarding the administration’s authority to influence his position. With monetary policy, inflation, and political pressure converging, Ed Al-Hussainy, Portfolio Manager of the Total Return Bond Fund at Columbia Threadneedle Investments, weighed in on what the current environment means for markets.

Al-Hussainy began with the global fixed income picture, stressing the value of diversification during periods of heightened volatility. He noted that credit spreads across both investment-grade and high-yield corporate bonds have remained relatively contained, even as interest rates have swung sharply. That contrast points to lingering uncertainty in rate markets, while also suggesting that corporate balance sheets remain on solid footing as 2026 begins.

Turning to the Federal Reserve, Al-Hussainy outlined what he sees as a deliberate strategy that has taken shape over the past year and a half. The central bank moved to add accommodation as signs of labor market cooling emerged. Now, he said, policymakers appear comfortable pausing, giving themselves room to assess a wide range of economic outcomes without rushing into further rate cuts. That stance aligns with expectations for U.S. growth to settle between 1.5% and 2%, a moderation from last year’s stronger pace.

Inflation, however, remains a central concern. Al-Hussainy pointed out that price pressures have eased considerably over the past year, falling from earlier highs to a range between 2.5% and 3%. He expects that trend to continue gradually toward the Fed’s target. At the same time, labor market data warrants close attention. Hiring momentum has slowed, and unemployment has crept up to nearly 4.5%. That softness could prompt additional scrutiny from policymakers as they weigh how best to manage inflation without undermining growth.

Political dynamics are adding another layer of uncertainty. Al-Hussainy noted that pressure from the White House on the Federal Reserve is highly unusual and raises questions about the central bank’s independence. The relationship between the administration and the Fed could introduce additional volatility, particularly if Congress does not take steps to reinforce the Fed’s autonomy.

Trade policy and geopolitical risk continue to weigh on markets as well. U.S. equities have struggled, while the dollar has come under pressure, a pattern often seen during periods of political and trade uncertainty. Foreign investors tend to hedge currency exposure in such environments, influencing broader asset pricing. In contrast, the 10-year Treasury yield, hovering around 4.5%, is becoming more attractive for investors seeking stable income at a time when valuations for risk assets remain elevated.

As early 2026 unfolds, investors are confronting a complex mix of moderating inflation, labor market headwinds, and geopolitical tension. Ed Al-Hussainy’s assessment highlights the careful balancing act facing policymakers and market participants alike. With multiple forces pulling in different directions, resilience and adaptability remain essential as investors navigate an environment defined by uncertainty and rapid change.

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