Market Development:
- March FOMC meeting results: The US Federal Reserve decided to keep the federal funds target range at 3.50% to 3.75% following its policy meeting, in line with market expectations.
- Dot Plot: The dot plot, which reflects Fed officials’ projections for the interest rate outlook, continues to indicate one rate cut of 25 bps in 2026.
The Fed’s latest economic forecast
GDP Growth: The Fed raised the GDP growth forecast for this year to 2.4%, from the 2.3% projected at the end of last year.
Unemployment rate: Estimated to remain at 4.4%
Inflation: The Fed raised its inflation forecast for this year from 2.4% to 2.7% and expects it to ease to 2.2% next year.
Chairman Powell’s Remarks:
At the post-meeting press conference, Chair Powell said progress on disinflation has been slower than the Fed previously expected, and the inflation outlook faces upside risks. The implications of developments in the Middle East for the economy are uncertain. Higher energy prices will push up overall inflation, while some of the oil price shock will be reflected in core inflation. Meanwhile, tariff-related issues are lifting inflation expectations and complicating the improvement in inflation.
On the policy stance, the Fed sees the current stance as appropriate. The Fed is at a tipping point between restrictive and non-restrictive policy. Inflation risks are skewed to the upside, while labour market risks are skewed to the downside, making rate-cut decisions more difficult. The Fed will not cut rates unless there is sustained improvement in inflation. Internal discussions on the possibility of rate hikes have begun, but hikes are not the base case scenario for most committee members. The Fed has no predetermined interest rate path and future meetings will be data-dependent in determining the appropriate rate level.
HSBC economic views：
- HSBC believes the US economic outlook remains uncertain, with key risks linked to conflict in the Middle East. Rising energy price (especially gasoline) could push inflation higher in the near term, while also reducing consumers’ purchasing power for non-energy goods and services. As a result, we expect the Fed to remain cautious about the future policy path.
- Although the dot plot still suggests one rate cut this year, HSBC believes that policy rates will remain unchanged in 2026 and 2027 as our inflation forecasts differ from the Fed’s. We forecast headline PCE inflation at 3.1% year-on-year in Q4 2026 (after peaking at 3.8% in Q2 before easing), and core PCE inflation at 3.1% year-on-year in Q4 2026. Our forecasts for both headline and core PCE this year are above the latest FOMC median projections.
HSBC asset class views：
- US Dollar: While the US Dollar had rebounded amid rising safe-haven demand driven by escalating tensions in the Middle East, as markets gradually digest the situation, risk sentiment has started to improve. In addition, expectations of US policy uncertainty and a more dovish Fed stance relative to other central banks may limit the dollar’s upside.
- US equities: US equities may remain volatile in the near term given recent geopolitical tensions and market concerns over the potential disruption by AI to traditional industries. However, HSBC continues to hold an overweight position in US equities, as we expect resilient fundamentals, AI development and opportunities, and supportive fiscal policies to remain key structural tailwinds. The recent pullbacks in the US equity market have also made their valuations more reasonable. However, given US policy uncertainty, we believe investors should avoid over-concentration in a single market and consider diversifying their investments by seeking opportunities in other regions such as Asia.
- Fixed income: Although higher oil prices have lifted inflation expectations and raised concerns that central banks may respond with rate hikes—potentially increasing near-term bond price volatility—amid market swings and uncertainty, we believe high-quality bonds (such as investment-grade bonds) continue to play an important role in portfolio construction. Their relatively stable income can help strengthen the portfolio's defensiveness and stability.
“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.