HSBC's US economist now puts the September Fed meeting at close to a coin toss between no change and a 25-basis-point rate increase, while keeping no change as the house view for the year.
That is the opposite of where the year began. Markets spent the first half of 2026 arguing about how many cuts were coming, after 75 basis points of cuts at the end of 2025, and the bank's rates desk says the rise in Treasury yields since then is mostly about the Fed rather than about deficits or growth.
"We would argue it's mostly the third of those things."
Three HSBC Global Investment Research analysts were in one New York studio rather than publishing three separate notes — the US economist, the US rates strategist and the global equity strategist — so the rates call and the equity call are being made against each other on air.
The full episode is covered here so you can skip it. 17 minutes of audio, 14 minutes of reading.
Here are the 12 calls that matter.
👤 Guests: Ryan Wang, US Economist at HSBC Global Investment Research; Dhiraj Narula, US Rates Strategist at HSBC Global Investment Research; Alastair Pinder, Global Equity Strategist at HSBC Global Investment Research
🎙️ Host: Aline van Duyn, who presents the Macro Brief from HSBC's New York studio
📰 Published: 14 September 2026 on the HSBC Global Viewpoint feed · first ran 3 September 2026 on the show's own Macro Brief feed
🟣 Apple Podcasts | 🔗 Episode page | ⏱️ 17 min
Key Takeaways
The September FOMC is close to 50-50 between no move and a 25bp hike, though HSBC's baseline is still no change all year
The question the Fed is asking itself is whether to reverse some of the 75bp it cut at the end of 2025
The rise in Treasury yields is mostly a Fed story, not a fiscal one or a growth one
HSBC forecasts the 10-year Treasury yield at 4.65% at the end of 2026, raised from 4.3%
It was around 4.8% when they recorded
Higher yields cost equity valuations about half what they did in 2022, because the starting level of yields decides the sensitivity
At 2% yields a 50bp rise took about 8% off the forward multiple; now it is 4.5% to 5%
The exception is the AI build-out: the Magnificent Seven used to earn interest on idle cash and now have to issue debt
The US federal deficit is running near $2T a year, over 6% of GDP, with the debt limit less than $2T away
The Treasury's larger buybacks are a maturity swap, not a fix
The 30 September PCE release carries methodological revisions that will lower measured inflation by a few tenths of a point
1. Mostly the Fed, Not Fiscal
Van Duyn opened on the rise in Treasury yields and asked what had changed. Narula's answer was to reject two of the three stories being told about it.
He named the three competing explanations and picked one. "There's also no shortage of narratives being talked about out there in the markets about why they've gotten there, whether that's perhaps structurally higher growth in the U.S., whether that's fiscal concerns, or indeed whether it's entirely driven by the Federal Reserve. We would argue it's mostly the third of those things."
What changed is the direction of travel, not the level. Earlier in the year the conversation was about rate cuts; the market now has a Fed chairman signalling that the Fed may have to act if inflation does not come down soon enough
He described it as a clear shift in the outlook for what the Fed may or may not do over the coming meetings, rather than as a repricing of growth or of the government's borrowing
2. A 50-50 September Call
Van Duyn turned to Wang for what the Fed is actually expected to do.
The starting point is a year of nothing, after a year of cuts. There have been no policy rate moves at all in 2026, following 75 basis points of cuts towards the end of 2025
The question the Fed is now asking itself is whether to take some of those cuts back, because of how long inflation has been running at an elevated pace
The house view has not changed: "Now, all year long, we've been anticipating that the Fed would not make any change to policy rates this year, neither rate cuts nor rate hikes. And we still retain that as a baseline view."
But the probability attached to it has. "But given how close the debate appears to be at the Fed, we now think that even at the September FOMC meeting, it will be an extremely close call and probably close to 50-50 essentially whether the Fed might deliver a 25-basis-point rate hike."
3. What Warsh Changed
Van Duyn noted that yields had fallen slightly after Jackson Hole and asked Narula what else was going on.
The chairman's Jackson Hole message did two things, and the second is the one that moved the market. "He told us he didn't really see policy rates today as restrictive, but he gave us a lot more clarity on how he's thinking about inflation."
Clarity is worth money in the long-dated part of the market. Narula's framing is that it removed some of what the desk calls the uncertainty premium: "So long end yields initially actually came down as markets appreciated some more clarity about the Fed outlook."
Then it reversed over a couple of days, on a renewed pickup in energy prices and more geopolitical headlines
The worry the market went back to is whether inflation will cool enough for the Fed not to have to act at all
4. The 4.65% Year-End Call
Asked where Treasury yields go from here, Narula gave a number, a revision and a reason.
The forecast, with the starting point attached: "So the 10-year Treasury yield as we speak is around 4.8%, but we're expecting that to cool off into year-end. We're expecting an end-2026 10-year Treasury yield of 4.65%. So we did revise our forecasts up. We previously had 4.3%"
The direction is still down from here even after the upgrade, on the expectation that some of the current uncertainties dissipate and the Fed outlook becomes clearer
5. Yields Bite Equities Less
Van Duyn handed to Pinder for what this does to global equities, and his answer was a series of reasons why the textbook response overstates the damage.
He conceded the textbook first. "I mean, historically, higher bond yields have been negative for equities." Higher yields raise the risk-free rate, and that has historically compressed valuations
The first qualifier is where yields started. "So like our analysis basically says the lower the bond yields, the more sensitive they are."
"So when bond yields were in at 2% back in 2022, every 50 basis points rise was basically an 8% hit to the 12-month forward PE."
"Today, given that we're already at very elevated interest rates, that sensitivity has gone down to a 4.5%, 5%."
The second qualifier is what else is happening at the same time. Valuations can compress and still be offset by earnings: "And again, where we are in the cycle, going past the Q2 earnings season, the S&P 500 just delivered 50% EPS growth." His arithmetic on the trade-off: "So 5% valuation here versus 50% EPS growth."
His conclusion is that he is not particularly worried about valuation compression, because more supportive things are going on
The third qualifier is the corporate balance sheet. "And then the other thing just to highlight is that the S&P 500 and US equities have a lot of fixed rate long term debt." Where the borrowing is fixed and long-dated, the sensitivity to rising rates is much less
6. The AI Capex Exception
Having listed three reasons the usual rule is weaker, Pinder named the one thing that could make this cycle different.
The exception is the spending, not the rates. "Now, the one area where I could say it could be different this time round is because of this huge AI capex cycle."
The largest technology companies have flipped from lenders to borrowers, and he called the reversal bizarre. "Actually, bizarrely, the hyperscalers, the Magnificent Seven, used to benefit from higher interest rates because there's so much cash that they weren't sure what to do with it."
Now the cash is committed and the funding has to come from the bond market. "Now they're spending it all to build out this capex, they're having to raise new debt. And that becomes a bit more of a challenge at a time where bond yields are rising."
His ranking is explicit: "So that, I think, is the biggest challenge that equity markets have to face at this point."
7. Disentangling the Signal
Van Duyn asked Wang how higher yields feed back into the Fed's own calculation, given the panel had just given her two different readings of them.
He began by conceding the disagreement in the room, noting that different people answer this differently and that you could see as much from what his two colleagues had already said
The benign reading: "On the one hand, you could say, well, higher yields might be a sign of confidence in the US economy." Strong demand for AI investment is adding to GDP growth and, on Narula's account, to the rise in Treasury yields
The Fed's own job narrows the question. "So for the Fed, the Fed has the responsibility to control inflation. That's the primary responsibility."
Which makes the reading of the signal the hard part. "So they are very sensitive to what's happening in markets, but they have to disentangle what sort of signal is being sent by those rising bond yields."
Narula picked up the entanglement and listed three strands pulling in different directions:
AI investment is aggregate demand, so it may be pushing near-term inflation up, which feeds the Fed's thinking
High-quality, cash-rich issuers are selling long-dated debt, which raises the question of whether that competes with Treasuries for the market's appetite and pushes rates up overall
And over the long run, the Fed itself has asked whether the AI build-out delivers productivity gains that turn out to be disinflationary
His verdict on all three: it is not going to be a simple answer in the near term
8. The Deficit Goes Global
After the break, Van Duyn turned to deficits and borrowing, starting with what equity investors make of them.
For US equities specifically, he does not rank it highly. "I mean, on the deficit side, I don't think it's the biggest point of focus, at least for the US right now." It reaches equities through bond yields rather than directly
His actual concern is contagion of the question, not of the debt. "I do worry that this then translates into a global question about deficits."
The place that has historically paid for that is emerging markets — he named countries in Latin America, in Europe, the Middle East and Africa, and in ASEAN, with high deficits or high debt to GDP
"And this has become a global frame of worry." His question is whether markets that have been performing well start to come under pressure because of a debate that began in Washington
9. A $2T Deficit, Then a Cliff
Wang gave the US fiscal position as a level and then as a calendar.
The level, with the ratio attached: "Well, I think if you look at the actual data on budget deficits in the United States, federal government budget deficits, they clearly have remained elevated roughly at around $2 trillion per year and that equates to over 6 percent of nominal US GDP."
He expects the same magnitude over the next 12 months as over the previous 12
The first deadline is the debt limit, and the arithmetic makes it soon. "The debt limit is currently far less than $2 trillion away." At current borrowing and deficit trends, it has to be dealt with
The second is the expiring tax provisions of the One Big Beautiful Bill Act. His point is that this is a fiscal issue before it is a legislative one: the impulse from lower taxes fades into next year, and policymakers then have to make fresh decisions
The third is the November midterms, because resolving either of the first two needs bipartisan agreement
On the likely outcome he cited the betting markets rather than a forecast of his own, saying "if you look at current betting markets, they are anticipating that Democrats will take control of at least the House of Representatives or at least they're pricing in an over 80 percent likelihood of that outcome"
The two scenarios produce different kinds of fight. Under divided government, "And in that situation, I do think those deadlines I mentioned over the next two years will have to be resolved on a bipartisan basis." Under unified Republican control, "There's still another scenario where Republicans do hold on to that both the House of Representatives and the Senate and then the backdrop could be a little bit different because Republicans would still be able to rely on a mechanism known as budget reconciliation." In that case the argument happens inside the Republican Party rather than between the parties
10. Buybacks Are Just a Twist
Van Duyn asked Narula whether any of this is what the bond market is actually trading.
His first answer is that it is seasonal noise with real effects. "So I think fiscal narratives come and go in the Treasury market pretty much every year." When the narratives line up, the long-dated part of the curve feels the pressure
What the Treasury has been doing about it is loading new supply at the short end. It has been selling a lot more Treasury bills; "It's not been increasing the supply of 10-year Treasuries, 30-year Treasuries."
The newer move is the buyback program. The Treasury Secretary announced a couple of weeks earlier that the size of the buyback would rise — buying back more long-dated debt, funded with short-dated debt
Van Duyn named it and Narula accepted the name. "A type of twist operation, exactly, that can make investors a little bit less concerned in the sense that long-end Treasuries have a lot more risk."
His judgment on it is unambiguous. "We don't think that that's ultimately a resolution to these deficit pressures of these fiscal worries. It's simply transforming the maturity profile of outstanding Treasury debt."
Against the size of the deficit and the debt stock, the buybacks are small, and he said the market moved away from its initial reaction to the announcement very quickly. "And so we don't think this resolves the underlying fiscal pressures." At most a short-term liquidity boost
11. The PCE Revision
Wang closed his side of the conversation with the data calendar, and with one release that is more than a data point.
The framework is the Fed's dual mandate. "So for the Fed, it often comes down to the dual mandate and the dual mandate basically relates to maximum employment and inflation."
Employment is getting less attention right now because on many indicators the labor market is in a broad balance, which puts inflation on top of the pile
The sequencing around the September meeting matters. "But on the inflation side, we will have the August CPI coming pretty soon." The August PCE numbers land towards the end of September — the CPI before the FOMC meeting, the PCE after it
And the PCE release is not a clean read. "And then something else that we flagged and that is now upon us is that at the end of September, that September 30th, PCE inflation release will include some methodological revisions, which likely will reduce measured inflation by tens of basis points, a few tenths of a percentage point."
Why a technical change is not only technical: "And on the one hand, that will just be a technical adjustment. But on the other hand, it will impact essentially the Fed's inflation measure" — the 2% target the Fed is aiming at is measured on a PCE basis
12. Two Very Loud Months
The last word came from the equity side of the panel, and it was about the density of the calendar rather than about a forecast.
The catalysts between September and early November stack up: the midterms, the inflation prints and the Fed meetings, all in the same window
One of them is a company filing rather than a macro release. Reuters has reported that Anthropic will produce its S-1 after Labor Day. "This is the first time that we'll really get to assess kind of like the balance sheet and the income statement for what will be arguably one of the biggest AI companies in the US."
That makes it a read on the thing the whole conversation has been circling — whether the AI build-out pays for itself — rather than only a listing
The expectation for the period is volatility. "But we're in this window, I think, of two months where a huge amount of information is going to be absorbed by the market."
Bonus Insights
The panel did not agree on how to read higher yields, and said so on air. Wang pointed out that his two colleagues had just given different accounts of what rising Treasury yields signal, and treated that disagreement as the substance rather than as an embarrassment
The uncertainty premium is the desk's own term for the part of a long-dated yield that is compensation for not knowing what the Fed will do, and Narula used it as the mechanism by which a clearer speech lowers yields
Energy prices and geopolitical headlines were named as the immediate cause of the reversal in yields over the days before recording, rather than anything the Fed or the Treasury did
The host closed by pointing listeners at the show's Asia sister podcast, Under the Banyan Tree, and named the producer
The team's bottom line is that the Fed, not the deficit, is what has moved Treasury yields, that a coin-toss September meeting sits in front of a two-month run of inflation prints and an election, and that the one place rising yields genuinely bite equities is the AI build-out, where the largest companies have gone from earning interest on spare cash to issuing debt into a rising market.
Products, Companies & Tools Mentioned
HSBC Global Investment Research (The three analysts' own shop; the Macro Brief is its weekly programme and the source of the rates, equity and economics calls here)
Federal Reserve (Cut 75bp at the end of 2025, has not moved since, and on this panel's reading is the main driver of the rise in Treasury yields)
US Treasury (Loading new supply into bills rather than 10- and 30-year bonds, and expanding buybacks of long-dated debt — which Narula calls a maturity swap rather than a fix)
S&P 500 (The index behind Pinder's argument: a lot of fixed-rate long-term debt, and an earnings season he says more than offsets the valuation hit from yields)
Anthropic (Its S-1, reported by Reuters as coming after Labor Day, is named as the first real look at the accounts of one of the biggest US AI companies)
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