Nate Thooft, CIO and senior portfolio manager at Manulife Investment Management, joins BNN Bloomberg to discuss the path forward for U.S. Fed rate decisions.
Markets are heading into 2026 after a year supported by central bank cuts, resilient growth and easing tariff concerns, but investors are increasingly questioning what will drive returns next. With many positive forces already priced in, expectations are shifting toward more modest gains and greater selectivity.
BNN Bloomberg spoke with Nate Thooft, CIO and senior portfolio manager at Manulife Investment Management, about why the Federal Reserve may cut rates more than markets expect, how inflation dynamics could shape policy, and why quality assets may regain favour in the year ahead.
Key TakeawaysMany of 2025’s major market tailwinds, including central bank easing, resilient growth and lower-than-feared tariffs, are largely priced in.Inflation appears to be in a range that allows the Federal Reserve to prioritize growth and jobs, opening the door to more rate cuts than markets expect.A shift toward broader equity participation is likely as investors move away from momentum-driven trades.Quality factors, including consistent earnings and strong free cash flow, may outperform after lagging in 2025.With fewer obvious catalysts, returns across asset classes in 2026 may be more modest, increasing the importance of selectivity.
Nate Thooft, CIO and senior portfolio manager at Manulife Investment Management Nate Thooft, CIO and senior portfolio manager at Manulife Investment Management
Read the full transcript below:
ROGER: All right, let’s take a look at the biggest themes in the markets this year and an outlook on what to track for the year ahead. We’re joined by Nate Thooft, CIO and senior portfolio manager at Manulife Investment Management. Nate, thanks, as always, for joining us as we look ahead. What from 2025 do you think carries into the new year?
NATE: I think the first thing about 2026 is that we’re looking for what the next catalyst is. This year, we had a number of drivers that ended up making markets better than a lot of expectations earlier in the year. Notably, tariff dynamics turned out to be better than expected. We had very significant concerns earlier in the year, and they ultimately ended up not being as bad or as high as feared.
Second, we had central banks cutting across the globe, both in the United States and elsewhere. And third, resilient growth. We’ve seen growth hold up pretty well, including growth related to AI.
My concern looking into 2026 is that the market is searching for the next catalyst because these known catalysts are pretty much priced in. The market knows about central bank cuts, it knows about AI spending, and it knows tariffs aren’t as high as they could have been earlier last year. So 2026 is going to be a bit more challenging, in my view, because we’re looking for a new catalyst versus what supported markets through 2025.
ROGER: Could inflation be it? The numbers we saw today — could that be the driver that kick-starts things?
NATE: We’re actually more concerned about inflation in the opposite direction. I think the base case is that inflation is in a reasonable zone, so the Fed will be comfortable with inflation in that two-and-a-half to low three per cent range. As long as it stays there, I think you still have a Fed that becomes very accommodating.
We would argue the risk — or the opportunity — is that the Fed might actually cut more than expected. That could be a positive catalyst. Right now, the market is pricing in roughly two quarter-point cuts next year, whereas we think it’s very likely we’ll see three quarter-point cuts, if not potentially more.
With the right makeup of the Fed, particularly after Jerome Powell, there is a catalyst there where we could see greater accommodation from central banks, especially the Fed, which would help risk assets.
ROGER: And what would that makeup look like at the Fed?
NATE: No one knows, obviously. We’re going to get a new chair.
ROGER: But what would you like to see?
NATE: Ideally, one of the existing candidates that’s on the table. In my view, they’re all qualified for the job. We can debate the nuances of who might be better or worse, but they’re qualified. That sets the standard that the Fed maintains its independence and can articulate its arguments.
Even if those arguments lean toward more cuts, they would still be grounded in what the Fed should be focused on — inflation, growth and jobs. I continue to believe the Fed will come across as an independent agency and won’t be outright biased by broader political dynamics.
The bigger question is who the other members of the Fed will be, how dovish they are, and whether the Fed starts arguing for a lower neutral rate. That could help justify further cuts beyond what the market currently expects.
ROGER: How much of a factor is the Trump factor when it comes to the Fed? We’ve heard repeated calls for cuts. Is that real pressure, or will the Fed maintain that separation?
NATE: The administration is allowed to have a view. Do I think the Fed will just take that view and implement it? No. I strongly believe the candidates on the table today will maintain autonomy and focus on the drivers I mentioned.
While the administration won’t be shy about vocalizing its views, I don’t think you’ll see a Fed that’s overly swayed or simply following the direction of the administration. The Fed’s job is very clear.
That said, there is nuance. If the Fed focuses more on growth and job concerns, that allows for more cuts. If it focuses more on inflation, that has the opposite effect. I think we’re in a position where the Fed will argue inflation is in an acceptable spot. It may be a bit high, but they can point to transitory effects, such as tariffs, while shelter inflation continues to come down. That gives them room to focus on slowing job dynamics and growth concerns.
ROGER: With AI, we’ve seen some rotation. Do you see that continuing into the new year?
NATE: One positive theme for next year is broader participation. We’ve had very strong performance from certain momentum names this year, and in some cases lower-quality, lower-earnings names — with the exception of the so-called Magnificent Seven, which are obviously strong performers with strong earnings.
I think next year there will be a greater appreciation for quality. In 2025, quality as a factor has been very weak, and high-quality companies with consistent earnings and strong free cash flow have underperformed. I think that changes in 2026.
That leads us toward areas like health care, sticking with high-quality tech, and finding quality opportunities in consumer and industrial sectors. So yes, I do think there’s an opportunity for broader participation rather than relying solely on momentum names.
ROGER: We’ll have to leave it there. Nate, thanks as always for joining us.
NATE: Thanks for having me.
ROGER: Nate Thooft, CIO and senior portfolio manager at Manulife Investment Management.
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This BNN Bloomberg summary and transcript of the Dec. 18, 2025 interview with Nate Thooft are published with the assistance of AI. Original research, interview questions and added context was created by BNN Bloomberg journalists. An editor also reviewed this material before it was published to ensure its accuracy and adherence with BNN Bloomberg editorial policies and standards.