Greenlight Capital founder David Einhorn says the markets are significantly underestimating the pace of monetary easing ahead at the Federal Reserve this year, CNBC reported.

The hedge fund manager predicts the Fed will lower interest rates “substantially more than two cuts” in 2025, Einhorn told CNBC Feb. 11.

This is twice what traders at the CME Group FedWatch tool are pricing in for 2025.

Einhorn, who is also the president of the value-oriented hedge fund, said his accelerated interest-rate cut forecast is giving him greater confidence in his gold bet.

The prominent hedge fund manager believes betting on more rate cuts than currently expected is “one of the best trades out there right now.”

Federal Funds Effective Rate Chart

Board of Governors of the Federal Reserve System

FOMC January meeting holds rates steady

The Federal Open Market Committee (FOMC) voted 10-2 to hold interest rates steady at 3.50% to 3.75% in January on the benchmark Federal Funds Rate, after three consecutive quarter-point cuts in its last three meetings of 2025.

The Federal Funds Rate guides interest rates for investors and consumers on auto and student loans, home-equity loans, and credit cards.

For consumers, a delayed rate cut could mean higher borrowing costs that remain in place longer than expected.

Fed Governors Stephen Miran and Christopher Waller dissented, saying they would have preferred a quarter-point cut due to softening in the labor market. 

It was the FOMC’s first pause since July 2025.

How the Fed sets interest rates 

The Fed’s dual congressional mandate requires it to balance inflation and job growth via interest rates.

  • Lower interest rates support hiring but can fuel inflation.
  • Higher rates cool prices but can weaken the job market.

The two goals often conflict, operate on different timelines and are influenced by unpredictable global events. 

After the December rate cut, Fed Chair Jerome Powell said the lowering of rates brought monetary policy “within a broad range of neutral.”

A neutral rate neither stimulates nor restrains economic growth.

When the Fed last paused interest rates

The Fed last paused interest rates in September 2023, holding the funds rate at 5.25% to 5.50% after a rapid tightening cycle aimed at curbing post-pandemic inflation.

The pause lasted nearly a year as policymakers wanted to see if the higher borrowing costs would tame inflation without dipping the economy into a recession.

During that pause, inflation gradually cooled and the labor market remained resilient.

The central bank resumed cutting rates in September 2025 once Fed officials became confident that inflation was moving sustainably toward the Fed’s 2% target.

David Einhorn expects substantial Fed interest-rate cuts ahead

Interest-rate cut expectations diminished a bit on Feb. 11, following the much better-than-expected January jobs report.

Einhorn said the market was “wrong” to view the latest jobs figures as a reason not to cut.

The number of rate cuts this year could exceed the two quarter-point reductions that the markets expect, he added.

Einhorn expects that Kevin Warsh — President Donald Trump’s nominee to succeed Powell as Fed Chair — will be able to persuade the other 11 members of the policymaking FOMC to lower rates more aggressively.

“If we have 4% or 5% inflation, sure, then he won’t be able to persuade people, but otherwise he’s going to argue productivity,” he said.

Warsh, in his view, will take the position of cutting “even if the economy is running hot,’’ Einhorn said. 

Related: Kevin Warsh’s net worth: The Trump Fed nominee’s wealth & income

Einhorn talks gold, trade policy, and the dollar

Einhorn gained notoriety in 2008 when he bet against Lehman Brothers at the Sohn Investment Conference just months before the investment bank declared bankruptcy, according to CNBC.

He told CNBC that gold has actually gone up over the past couple years as a result of “becoming the reserve asset” to own among central banks around the world.

“U.S. trade policy is very unstable, and it’s causing other countries to say we want to settle our trade in something other than U.S. dollars,” Einhorn said.

In the long term, he said a reason to own gold is that the current relationship between our fiscal and monetary policies “don’t make any sense.” 

Other major developed currencies around the world are “as bad or worse” than the United States’, Einhorn said.

The U.S. dollar suffered its biggest single-day drop since April 2025 last month after President Trump said he wasn’t concerned about the currency’s recent weakness, CNBC reported.

“There are some issues that sometime over the next number of years could play out with some of the major currencies,” he said.

Einhorn is betting long futures on Secured Overnight Financing Rate

Betting on more interest-rate cuts is “one of the best trades out there right now,” Einhorn said. He also has long futures on the Secured Overnight Financing Rate(SOFR), which essentially is a bet that short-term rates will continue to drop.

“I think by the time we get to the end of the year, it’s going to be substantially more than two cuts,” he said.

Gold sold off at the end of last month after Trump announced Warsh as his nominee for Fed chair, according to CNBC, since the move eased anxieties on Wall Street surrounding Fed independence.

The yellow metal — typically viewed as an inflation hedge — has since recovered, with gold futures up more than 17% this year. 

That’s after it surged more than 60% in 2025 amid threats to central bank independence, as well as heightened geopolitical tensions and unstable trade policy, CNBC reported. 

Since 2024, it has surged more than 120%.

Fed officials wary of substantial interest-rate cuts

Interest rates could be on an extended hold while officials evaluate incoming economic data, Federal Reserve Bank of Cleveland President Beth Hammack said in prepared remarks on Feb. 10. 

“Rather than trying to fine tune the funds rate, I’d prefer to err on the side of patience as we assess the impact of recent rate reductions and monitor how the economy performs,” Hammack said.

 “Based on my forecast, we could be on hold for quite some time,” she added.

The Cleveland Fed chief, a voting member this year on the FOMC, has repeatedly urged her peers to be cautious with rate cuts to avoid pumping inflation higher. 

Federal Reserve Bank of Dallas President Lorie Logan, also a voting member of the 12-member FOMC, said Feb. 10 that she’s hopeful inflation will continue to come down. She added that it would take “material” weakness in the labor market for her to support more interest-rate cuts.

Kansas City Fed President Jeff Schmid said in prepared remarks Feb. 11 that the central bank needs to keep rates at a restrictive level to maintain downward pressure on inflation.

January inflation figures arrive Feb. 12

The delayed Consumer Price Index for January will be reported Feb. 12.

The December CPI number showed inflation rising at 2.6% year over year. The Fed has set a target of 2% annually.

Hence, the CPI data will be closely watched for evidence inflation is ticking down.

There are some hints that this week’s report could show hot January inflation yet again. 

“Tariff pass-through had been slow and gradual until December,” Aichi Amemiya, an economist at Nomura Securities, told The Wall Street Journal Feb. 9.

“It’s very possible that retailers passed higher costs onto their customers through postholiday price adjustments.”

So when is the next Fed interest-rate cut?

At the end of last year, the policymakers penciled in one further rate cut in 2026.

Wall Street traders don’t anticipate seeing more Fed easing until later in the year, as reflected by their bets in interest-rate futures markets.

The CME Group FedWatch tool reports the likelihood of a quarter-point rate cut as:

  • March: 17.7%
  • April: 32.5%
  • June: 50.4% 

Related: Hot January jobs report impacts outlook for Fed rate cuts