Fed: Prolonged hold with inflation uncertainty – HSBC Private Bank

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.)