Catenaa, Saturday, October 31, 2026- Standard Chartered expects the Federal Reserve to hike interest rates twice in 2027 before easing in the second half.
“We expect the Fed to hike twice more by Q2 2027, then ease in H2 2027, as AI-led expansion continues,” Standard Chartered said in its November global market outlook.
Standard Chartered said the US economy continued to demonstrate resilience in the third quarter, with annualised GDP growth reaching 3.4%, supported by stronger household consumption and investment in artificial intelligence.
Economic growth expectations have improved since the bank’s previous monthly assessment. Consensus forecasts now point to US GDP expansion of 2.3% in 2026, up from an earlier estimate of 2.1%, while the 2027 growth projection has been revised up to 2.2%.
“That matches the Fed’s upgraded growth projection of 2.3% for 2026, but remains below the Fed’s 2.4% estimate for 2027,” the bank said, adding that AI investment, fiscal support and household wealth are the main growth drivers, although consumer activity lags business spending.
Moreover, the bank said rising oil prices “pushed US core personal consumption expenditures (PCE) inflation to 0.3% m/m and 3.1% y/y,” matching estimates.
Consensus sees core PCE inflation slowing from 3.2% in Q4 2026 to 2.4% by Q4 2027 as energy and tariff effects fade, the bank said.
However, Standard Chartered said that fuel costs passed on to wider consumers and AI-driven chip shortages remain upside risks, and in October, the Fed held rates at 4.0%, after hiking in September for the first time since 2023.
“We expect the Fed to hike rates by 25bps in December and 25bps more in H1 2027 due to elevated near-term energy inflation,” Standard Chartered said.
The bank also added that it is likely to follow with a 25bps cut to 4.25% in Q3 2027 as disinflation returns.
“This aligns with the Fed’s projected policy path, although it implies a more dovish trajectory than money markets, which are pricing another 56bps of hikes over the next 12 months,” the bank said.
