Fed: Prolonged hold with inflation uncertainty – HSBC Private Bank

FXStreet Insights Team FXStreet

HSBC strategists Jose Rasco and Michael Zervos say the Federal Reserve kept the funds rate at 3.50%-3.75% and signalled a clear wait-and-see stance. They expect no rate changes through 2026 and 2027 as inflation risks have risen with higher energy prices, while labour market risks have shifted modestly to the downside and geopolitical tensions cloud the outlook.

Policy on hold as risks stay two sided

"At its March meeting, the Fed again left the policy rate unchanged at 3.50%-3.75% and signalled a clear "wait-and-see" stance. Persistent inflation and rising geopolitical risks have created uncertainty for Fed members."

"We maintain our view that the Fed will keep rates unchanged throughout 2026 and 2027. Inflation risks have moved higher, particularly due to the spike in energy prices, while labour market risks have shifted modestly to the downside."

"Volatile energy prices and geopolitical risks should continue to support safe-haven demand and the USD."

"We remain overweight on US and global equities, supported by strong earnings and structural tailwinds, as US stagflation risks remain low in spite of the Middle East conflict."

"In fixed income, we stay neutral on Treasuries given range-bound yields, while favouring investment grade corporate bonds for their attractive yields and emerging market local currency debt for diversification. We complement this with allocations to gold and alternatives to manage volatility and enhance diversification."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)

Author

FXStreet Insights Team

FXStreet

The FXStreet Insights Team is a group of journalists that handpicks selected market observations published by renowned experts. The content includes notes by commercial as well as additional insights by internal and external analysts.

AUD/USD flirts with 0.7000, lowest since early August amid bullish USD

AUD/USD hits a fresh low since early August during the Asian session on Friday and looks vulnerable near 0.7000 after breaking below the 200-day SMA overnight. Against the backdrop of the hawkish Fed, a two-day rally in oil prices revives inflation fears and continues to push US bond yields to multi-year highs. Adding to this, geopolitical risks lift the US Dollar to a two-month high, overshadowing RBA rate hike bets and weighing on the pair.

USD/JPY pulls back from three-week high after failing near 159.00

USD/JPY edges lower during the Asian session on Friday, stalling its recent strong move to a three-week high of 159.00 as Japanese Yen bears turn cautious amid intervention fears. Meanwhile, the US Dollar retains a strong bullish undertone as the Fed's hawkish outlook and oil-driven inflation fears continue to push US bond yields to multi-year peaks. Furthermore, the BoJ's dovish rate hike last week might cap JPY and support spot prices.

Gold treads water below $4,300

Gold grabs some buying attention and advances marginally at the end of the week, partially retracing the weekly decline, although it is still navigating below the key $4,300 mark per troy ounce. The fresh selling bias on the Greenback and the modest decline in US Treasury yields appear to support the humble advance in the precious metal.

Crypto Today: Bitcoin and Ethereum edge lower, XRP extends recovery as macro headwinds weigh

The broader cryptocurrency market is consolidating on Friday, with Bitcoin paring losses slightly above $84,000. Ethereum declines in tandem with BTC. Ripple (XRP), meanwhile, paints a different picture.

Fed vs BoJ: Both hiked. The market only believes one of them – and the chart shows which

The Federal Reserve (Fed) and the Bank of Japan (BoJ) have just done something remarkably similar. Both central banks raised interest rates by 25 basis points (bps) last week, both are confronting inflation risks, and both signal that future decisions will depend on incoming economic data.

Fed vs BoJ: Both hiked. The market only believes one of them – and the chart shows which

The Fed and the BoJ have just done something remarkably similar. Both central banks raised interest rates by 25 bps last week, both are confronting inflation risks, and both signal that future decisions will depend on incoming economic data.