Key takeaways

• The Fed delivered a 0.25% rate cut as expected, lowering the target range to 3.50–3.75%. It also introduced reserve-management purchases of short-term instruments, which will begin with roughly USD40bn in Treasury bills but they are not QE (quantitative easing) and carry no implications for the policy stance. The ‘DOTS’ chart with Fed members’ views of the future rate path was little changed, with continued wide dispersion in views.
• We continue to expect the policy rate to remain unchanged through 2026–27, with meaningful two-sided risks as the economy transitions into 2026. The economic projections show stronger growth and lower inflation, with a notable mechanical rebound in 2026 GDP following the shutdown.
• The policy rate cut is accretive to corporate earnings and should help keep valuations in check. Technology, AI, and productivity-linked sectors stand to benefit from lower real yields and improving macro conditions. The cut is also positive for rate-sensitive sectors and companies benefitting from AI-driven investment and the ongoing US re-industrialisation trend. Even if the Fed does not cut any further and P/E multiples stagnate, equities can do well as the underlying economy remains robust with corporate earnings projected to grow by roughly 14.5% in 2026. For fixed income, the Fed’s monitoring of inflation and the continued decline in inflation expectations provide a supportive backdrop, while the USD could see short-term downside before a more lasting base is formed during Q1 2026.

Please refer to the full report for details about the event and our investment view.

https://www.hsbc.com.my/wealth/insights/market-outlook/special-coverage/fed-likely-moving-to-a-hold-after-its-december-cut-as-fomc-is-split/