Investing.com - U.S. stocks remain exposed to risks of renewed declines following the Federal Reserve’s decision to leave interest rates steady and flag lingering economic uncertainty due to Trump administration tariff plans, according to analysts at HSBC.
The main stock averages on Wall Street rose on Wednesday, as traders lifted their bets for Fed interest rate cuts this year. Investors are now pricing in 68 basis points worth of reductions, up from 56 basis points — or about two quarter-point drawdowns — ahead of the Fed’s latest policy announcement.
However, stocks have yet to claw back recent losses that were sparked by President Donald Trump’s tariff threats. The S&P 500 has shed 8% over the past month, and has erased all the gains it notched shortly after Trump was elected to a second term in the White House in November.
Although the HSBC analysts said that some of its sentiment and positioning indicators are "flashing oversold levels," the possibility remains for "further unwinding in U.S. equities." A "prevailing bearish mood" around the U.S. dollar was also not challenged by the Fed’s decision, while a "cautious short-term view" on U.S. Treasury yields is warranted, the analysts added.
The rate-setting Federal Open Market Committee, the FOMC, kept its benchmark rate steady for a third-straight meeting at a range of 4.25% to 4.5%.
Fed members see the benchmark rate falling to 3.9% this year, suggesting two rate cuts, matching the prior forecast in December. The rate-cut outlook for 2026 and 2027 were also unaltered at 3.4% and 3.1%, respectively.
The Fed’s unaltered outlook on rates comes as inflation is expected to remain higher in 2025 and economic growth is tipped to be softer over the next few years.
The core personal consumption expenditures price index, the Fed’s preferred inflation forecast, is now projected to be 2.8% this year, up from a prior forecast in December of 2.5%. For 2026, inflation is estimated to be 2.2%, up from 2.1% previously, and slowing further to the 2% target by 2027, unchanged from the prior forecast.
“Inflation has started to move up,” Fed Chair Jerome Powell said, warning that “there may be a delay in further progress over the course of this year.”
Still, the Fed chose not to price in a prolonged surge in prices or a slowdown in growth, with Powell stressing that the possible outcome of Trump’s tariffs remains murky.