Federal Reserve Chairman Kevin Warsh held his first policy meeting on June 17, choosing to keep interest rates unchanged while stressing that price stability is the Fed's top priority [1, 2, 3]. Warsh’s hawkish tone surprised markets that had anticipated imminent rate cuts, prompting banks like Bank of America and Deutsche Bank to revise their forecasts upward for multiple rate hikes this year [4, 5, 6]. Bank of America expects three hikes of 25 basis points each in September, October, and December, totaling 75 basis points [5, 6], while Deutsche Bank sees two hikes likely in September and December, adding 50 basis points [4, 6]. Market pricing also reflects about a 50% probability for a July 2026 hike [2, 4].
US Treasury Secretary Scott Bessent expressed confidence in Warsh’s independence, stating, "I am confident that the Fed chair will optimise the path for both inflation and economic growth" [1]. Bessent predicts inflation will ease as the Iran conflict de-escalates and energy prices fall. "Now that we are, I believe, on the other side of this conflict, gas prices will come back down, inflation will come back to target," he said [1]. Yet, inflation gauges remain elevated, with May's Fed inflation measure expected at 4.1% and core inflation at 3.4% excluding food and energy [1].
Financial firms reacted quickly. Goldman Sachs and Deutsche Bank lowered gold price targets due to reduced demand for inflation hedging amid Warsh’s hawkish stance [7]. Morgan Stanley and others raised forecasts for US dollar strength based on anticipated Fed hikes [7]. Despite the hawkish Fed, HSBC and UBS expressed optimism on US economic growth driven by AI innovation, expecting stable interest rates through 2026 and 2027 [8, 9, 10, 2, 11]. HSBC highlighted four investment priorities for Q3 2026 focused on AI, energy autonomy, diversified assets, and Asia innovation [9, 10]. Taiwan and South Korea are projected to benefit significantly from AI-related semiconductor demand, supporting export-led growth [8, 9, 10, 11].
There is still disagreement among major financial institutions regarding the timing and number of Fed hikes in 2026. While BofA and Deutsche Bank forecast two to three hikes, HSBC and other firms expect no rate changes the rest of the year [2, 4, 5, 6]. RBC Capital Markets strategist Lori Calvasina said, "只要未來的加息週期保持適度，股市最終將能安然度過挑戰," meaning moderate future hikes should not derail equity markets [4].
HSBC forecast US GDP growth at 2.1% and inflation at 3.5% in 2026, projecting Brent crude oil near $86 per barrel by year-end [8, 9, 10]. Taiwan’s GDP growth is expected at 7%, though forecasts have yet to be updated [2].
Warsh’s next policy moves and the Fed’s rate path will be closely watched in the coming months amid these diverging views. The market awaits the July 2026 meeting for further clarity on interest rates [2, 4].
