Fed: Hold stance after December cut – HSBC

HSBC analysts Jose Rasco and Michael Zervos note that the Federal Reserve cut rates by 0.25% to 3.50–3.75% and introduced reserve-management purchases of short-term instruments. They expect the policy rate to stay unchanged through 2026–27, with two-sided risks as the US economy transitions into 2026 and projections showing stronger growth and lower inflation after the shutdown.

Fed cuts then likely extended pause

"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."

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

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