U.S. Equities Face Further Downside Risks Following Fed Decision, HSBC Warns

tock market volatility persists as analysts at HSBC caution that U.S. equities remain vulnerable to further declines following the Federal Reserve’s latest policy decision. The central bank kept interest rates steady, highlighting ongoing economic uncertainty fueled by the Trump administration’s tariff plans.

Wall Street Reacts to Fed’s Steady Rate Policy

On Wednesday, the S&P 500 and other major indices posted gains as traders increased their bets on future Fed interest rate cuts. Investors now anticipate 68 basis points in rate reductions, up from 56 basis points before the policy announcement—equivalent to about two quarter-point cuts.

However, despite this optimism, stocks have yet to recover recent losses triggered by President Donald Trump’s tariff threats. The S&P 500 is down 8% over the past month, erasing all post-election gains since Trump secured his second term in November.

HSBC Warns of Continued Equity Market Risks

While some sentiment and positioning indicators signal oversold conditions, HSBC analysts emphasize that further unwinding in U.S. equities remains a possibility. Additionally, the bearish outlook on the U.S. dollar persists, with analysts maintaining a cautious short-term stance on Treasury yields.

The Federal Open Market Committee (FOMC) decided to keep its benchmark interest rate unchanged for the third consecutive meeting, maintaining a target range of 4.25% to 4.5%.

Fed’s Rate Forecast and Inflation Concerns

Fed policymakers project the benchmark rate to decline to 3.9% in 2025, reinforcing expectations of two rate cuts this year, in line with December’s forecast. Projections for 2026 (3.4%) and 2027 (3.1%) also remain unchanged.

However, inflation estimates have ticked higher, with the core personal consumption expenditures (PCE) price index—the Fed’s preferred inflation measure—now forecasted at:

• 2.8% for 2025, up from 2.5% in December.

• 2.2% for 2026, slightly above the previous 2.1% estimate.

• 2.0% target by 2027, unchanged from prior forecasts.

Fed Chair Jerome Powell acknowledged that inflation is showing signs of rising, warning that progress toward the 2% target could be delayed this year.

Trump’s Tariffs Add to Economic Uncertainty

Despite concerns over inflation and slower economic growth, the Fed refrained from pricing in a prolonged economic slowdown. Powell also emphasized that the impact of Trump’s tariffs on inflation and economic performance remains uncertain.

Key Takeaways for Investors:

• Stock market risks remain, despite expectations of Fed rate cuts.

• The S&P 500 has erased post-election gains, declining 8% over the past month.

• HSBC sees potential for further market unwinding and bearish sentiment on the U.S. dollar.

• Inflation forecasts have been revised upward, with the Fed’s PCE inflation outlook rising to 2.8% in 2025.

• The impact of Trump’s tariff policies on economic growth remains unclear.

With market volatility persisting, investors should closely watch Fed signals, economic data, and trade policy developments as key drivers of equities, Treasury yields, and currency markets in the months ahead.

(Sources: investing.com, reuters.com, supported by AI)