HSBC's Major Forecast Shift: Two Fed Rate Hikes Expected This Year

In a notable move, global banking giant HSBC has issued a report that significantly alters its outlook on U.S. monetary policy. The bank has abandoned its previous expectation for the Federal Reserve to hold rates steady this year, now forecasting two separate 25-basis-point hikes at the September and December policy meetings.

Data-Driven Reversal: Jobs and Inflation Surprise to the Upside

This pivotal shift in forecast is directly attributed to recent U.S. economic data releases. Ryan Wang, HSBC's U.S. economist, noted in the report that August's stronger-than-expected employment report and Consumer Price Index (CPI) data were the core catalysts for the reassessment.

Specifically, HSBC now anticipates that the Federal Open Market Committee (FOMC) will vote for a 25-basis-point increase at its September meeting, pushing the target range for the federal funds rate to 3.75%-4%.

Dot Plot Hints at Consecutive Moves

The report further analyzes that the upcoming new FOMC "dot plot" might show a median projection of 4.125% for the end of 2026. This signal suggests that at least a significant number of policymakers are leaning toward consecutive actions, with 25-basis-point hikes at both the October and December meetings.

  • Key Meeting Dates: September and December FOMC meetings are now in focus.
  • Rate Terminal Point: Projections indicate the hiking cycle may not be over.
  • Policy Continuity: The likelihood of back-to-back hikes has increased.

Beyond the Hikes: No Quick Pivot to Cuts

Contrary to some market speculation anticipating a swift pivot to rate cuts following hikes, HSBC's report offers a more cautious outlook. Given the continued robust momentum in U.S. economic growth, the bank believes monetary policy will not quickly shift to an easing cycle after this year's hikes. This provides a clearer framework for investors navigating the future interest rate landscape.

This forecast revision reflects a reassessment of the underlying strength of the economy and signals that markets may need to prepare for a more prolonged period of higher rates.