Federal Reserve Chair Jerome Powell hinted that the central bank may re-accelerate the pace of its interest-rate increases if economic data warrants. But such a move would be a mistake, according to a bond manager who beat most of his peers last year.

“If the Fed goes 50, that could be the first concrete step in a true overly restrictive policy error, after decades of being too easy,” said Eddy Vataru, a portfolio manager at Osterweis Capital Management, referring to a potential 50 basis-point hike at the upcoming meeting. “The message they would send, if they really accelerate, would be a horrible message: they slowed down prematurely and they’ve lost control.”

Vataru’s $134 million Osterweis Total Return Fund beat 95% of its peers last year by reducing exposure to interest-rate risk, limiting its losses to 6.5%, or about half what was posted by its peers, according to data compiled by Bloomberg. It has beat 92% of its rivals over the past three years.

In testimony before Congress this week, Powell said the US central bank is likely to raise interest rates higher than previously thought and that he’s prepared to pick up the pace of monetary policy tightening if needed.

Interest-rate swaps show traders are now betting that the Fed is more likely to raise its key borrowing costs by a half-point on March 22. That would mark a reversal for the central bank, which dialed back the size of its increases at the last two meetings. 

The central back started slowing in December with a half-point increase that came in the wake of four hikes of 75 basis points each. Powell and his colleagues slowed the tightening further to a quarter-point move in February, bringing the policy rate to a range of 4.5% to 4.75%.

“The truth of the matter is that extra 25 isn’t going matter at the margin,” said Vataru. “If they could maintain a somewhat restrictive policy for a long time, that’s better than maintaining a hyper restrictive policy for a short time, because the other scenario probably means a hard landing.”

Prior to joining Osterweis in 2016, Vataru worked at Incapture Investments and Citadel. Before that, he spent over 11 years at BlackRock Inc., where his last position was as the head of US rates and mortgages.

At the end of December, his Osterweis fund held 25% of its assets in cash and 22% in Treasuries. The rest of the portfolio was spread between corporate bonds and securitized products, such as mortgage-backed securities.

While the cash pile remains high, Vataru said he’s started buying long-dated Treasuries since the beginning of this year, after keeping the exposure at zero six months ago.

The so-called barbell strategy allows him to benefit from high yields offered by cash and short-term bills, while the holdings of long bonds has the potential for capital appreciation, should the economy crumble under the weight of the Fed’s monetary tightening, he said. 

Treasuries rallied Thursday as signs of a softening labor market and a rout in bank stocks cast dobuts on the strength of the US economy.

“The more short-rates rise, the greater lid it puts on long rates rising, because of increased likelihood of hard landing,” said Vataru, who manages the fund with Daniel Oh and John Sheehan. “There is some safety in owning longer bonds.”

This article was provided by Bloomberg News.