Key takeaways

• The Fed kept rates unchanged at 3.50%–3.75% in a unanimous 12–0 vote. But Kevin Warsh’s first meeting as Fed Chair delivered a clear shift in tone, with a stronger emphasis on inflation risks and less reliance on forward guidance.
• The FOMC is more divided than the market had anticipated, and the US dollar has risen on the resulting rate repricing. Warsh downplayed the precision of the dot plot, did not submit his own projection, and said that the 2%inflation target is not up for review until the Fed has re-established credibility in achieving it.
• We continue to think the FOMC will hold the federal funds target range steady through 2026 and 2027, in line with most Fed members. In spite of the mild US equity weakness overnight, we maintain our bullish view, supported by resilient consumer spending, strong corporate balance sheets and continued investment in AI and infrastructure. In fixed income, we remain focused on income over capital gains, as prospects for rate cuts have declined even further. We prefer investment grade credit and selective emerging market debt, where still-attractive yields and limited near-term spread-widening catalysts support carry opportunities.

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

“Overweight” implies a positive tilt towards the asset class, within the context of a well-diversified, typically multi-asset portfolio.

“Underweight” implies a negative tilt towards the asset class, within the context of a well-diversified, typically multi-asset portfolio.

“Neutral” implies neither a particularly negative nor a positive tilt towards the asset class, within the context of a well-diversified, typically multi-asset portfolio.

https://www.hsbc.com.my/wealth/insights/market-outlook/special-coverage/hawkish-stance-from-warshs-fomc-surprises-market/