HSBC Analysts Predict Possible Return of Rate Hikes by 2026 Amid Current Easing Phase
In a recent note by HSBC analysts, it has been highlighted that while the Federal Reserve is currently easing monetary policy, there is a possibility of rate hikes returning by 2026. This comes after 14 months of steady rates, with the Fed cutting rates by 50 basis points in line with actions taken by other central banks.
The note explains that despite high inflation trending downward and signs of cooling in the labor market, uncertainties still loom. Global economic conditions, political developments, and market volatility could shape future Fed decisions, with the outcome of the 2026 U.S. presidential elections being a key factor.
HSBC presents two potential scenarios in their analysis - one involving fiscal tightening and further rate cuts, and the other foreseeing supply-side shocks leading to rate hikes. They suggest that the latter scenario could prompt rate hikes regardless of the Fed Chair's tenure.
While the possibility of the economy rebounding strongly and prompting rate hikes exists, HSBC also acknowledges the potential for the Fed to lower rates in 2026 if it appears to be behind the curve amidst a US hard landing in 2025.
In summary, investors should be mindful of the evolving economic landscape and policy changes post-2026 elections, as these factors could impact monetary policy and their financial portfolios. Stay informed and prepared for potential market shifts ahead.