David Einhorn Bets on More Than 2 Rate Cuts in 2026, Says It is The Best Trade Right Now

Despite the economic data for January on consumer prices and the US labour market, investors still expect the US Federal Reserve to trim interest rates two more times in 2026, likely in June and September.

However, the co-founder of Greenlight Capital hedge fund, David Einhorn, is betting that the Fed, led by Kevin Warsh, would lower interest rates 'substantially more' than the markets are pricing in.

Einhorn purchased Secured Overnight Financing Rate (SOFR) futures on expectations of a market rally if the Fed lowers borrowing costs more aggressively. 'I think one of the best trades out there right now is betting on more cuts this year than expected,' Einhorn told a media outlet this week. 'I think by the time we get to the end of the year, it's going to be substantially more than two cuts.'

Einhorn's disclosure comes after a better-than-expected US jobs report led traders to pare back their bets for Fed rate cuts this year to about two quarter-point moves. However, the hedge fund manager believes the Warsh will likely deliver rate cuts to lower borrowing costs, which is exactly what US President Donald Trump wants.

Warsh is Known For His Hawkish Stance

Warsh is known on Wall Street for working for Stanley Druckenmiller. He was also one of the youngest-ever members of the Federal Reserve's Board of Governors, serving from 2006 through 2011.

Warsh has been hawkish in the past, particularly during his stint as a Fed governor, when he was more concerned about inflation than the labour market. If Warsh continued his earlier approach, he would likely not support rate cuts because inflation remains above the Fed's preferred 2% target, while the unemployment rate declined to 4.3%.

Einhorn explained that Warsh could adopt a new strategy by convincing his colleagues that growing productivity will create room for simpler monetary policy, even if the economy is strong.

'He's not being brought on to hold the rates at a steady rate. He's going to argue we can cut even if the economy is running hot,' Einhorn said. '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.'

Einhorn's view is based on the idea that productivity growth will enable businesses to be more efficient and thus grow without hiking prices, which will funnel down to the economy.

There is also a possibility that Warsh could please Trump and be hawkish at the same time. Warsh has expressed interest in shrinking the Fed's massive balance sheet, which ballooned under Jerome Powell largely in response to the COVID-19 pandemic.

Since then, the Fed has leveraged quantitative tightening to shrink the balance sheet, though these efforts ended in late 2025. Hence, Warsh could, in theory, lower rates while also using quantitative tightening. However, tightening can be challenging to control at times and drain reserves from the economy rapidly, creating issues for short-term rates.

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