Why a hawkish Fed isn’t scaring Wall Street

US stocks are showing surprising resilience as Wall Street increasingly abandons expectations for near-term Federal Reserve rate cuts.

Several major financial institutions have recently pushed back their forecasts for monetary easing, with some now expecting the Federal Reserve to leave rates unchanged throughout 2026.

Yet despite the more hawkish outlook, strategists remain broadly constructive on equities, particularly in the United States.

Standard Chartered, in its second-half 2026 investment outlook published on June 19, said it remains overweight global equities, with a preference for US and Asia ex-Japan stocks.

The bank forecasts the Federal Funds rate will remain in a range of 3.5% to 3.75% through the remainder of 2026, with only a single 25-basis-point cut expected in the first half of 2027.

The bank expects strong corporate earnings and continued economic resilience to support markets despite elevated borrowing costs. It forecasts the S&P 500 will reach 7,950 by mid-2027.

Standard Chartered said the US economy is performing better than many had feared, with second-quarter growth tracking around 2.2% on a seasonally adjusted annualized basis.

Full-year growth is expected to average approximately 2.1%, supported by artificial intelligence-related capital expenditure, a recovering labor market, and increased manufacturing activity.

Wall Street pushes rate-cut expectations back

The constructive outlook for equities comes even as investors adjust to a Federal Reserve that appears increasingly reluctant to ease policy.

Goldman Sachs recently pushed its forecast for the next Fed rate cuts into 2027.

The bank now expects policymakers to leave rates unchanged throughout 2026 before delivering reductions in June and December 2027.

The revision followed stronger-than-expected labor market data and reflects expectations that economic growth and inflation pressures will remain firm.

Citigroup has also delayed its expected easing timeline. The bank now forecasts rate cuts in October and December 2026, followed by another reduction in January 2027, after previously expecting cuts to begin in September.

Meanwhile, UBS Global Wealth Management has shifted its first expected rate cut into 2027, forecasting reductions in March and June next year rather than cuts beginning later this year.

The revisions come after Federal Reserve policymakers signaled a more cautious stance on inflation, prompting investors to reassess expectations that lower rates would arrive quickly.

Other assets struggle with higher rates

While equities have largely absorbed the hawkish shift, other asset classes have been less resilient.

Bitcoin was trading near $62,000 on Friday after falling from above $67,000 earlier in the week.

The cryptocurrency has struggled to regain momentum even as stocks recovered, reflecting the pressure that higher interest rates place on speculative assets.

Higher borrowing costs typically reduce the attractiveness of assets that do not generate income, particularly when yields on cash and fixed-income investments remain elevated.

Gold has also weakened. Futures recently fell 1.8% to around $4,173 an ounce after trading above $4,350 earlier in the week.

Rising real yields and a stronger dollar have weighed on demand for the precious metal, which offers no yield to investors.

The divergence has become increasingly pronounced. While stocks continue pushing toward record highs, both Bitcoin and gold have struggled to maintain gains as markets price in a longer period of restrictive monetary policy.

Earnings and AI spending drive confidence

Rather than relying on lower interest rates to justify higher valuations, investors appear increasingly focused on earnings growth and corporate spending trends.

Artificial intelligence investment remains one of the strongest drivers of capital expenditure across the US economy, supporting demand across technology, infrastructure, and manufacturing sectors.

Markets briefly wobbled following Federal Reserve Chair Kevin Warsh’s first policy meeting, which underscored policymakers’ concerns about inflation.

However, equities quickly recovered, aided by optimism surrounding an agreement between the United States and Iran that could help stabilize energy markets through the reopening of the Strait of Hormuz.

For now, Wall Street’s message appears increasingly clear: rate cuts may be further away than previously expected, but many strategists believe strong earnings growth, economic resilience, and continued AI investment can keep supporting equities even in a higher-rate environment.

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