US: Policy uncertainty and macro backdrop – HSBC

HSBC Asset Management notes a spike in the policy uncertainty index on recent US trade and Federal Reserve headlines, even as US stocks range-trade and volatility stays contained. The team sees US growth near trend, with sticky but gradually moderating inflation through 2026. They argue rising policy uncertainty supports expectations that the Fed will stay on hold in coming months.

The only certainty is uncertainty!

"The policy uncertainty index spiked last week on the recent trade and Fed headlines. But financial markets appear unconcerned – US stocks are range-trading, the VIX volatility index is relatively low at 20, and credit spreads are at multi-decade tights. What’s going on?"

"#1. First, it is very likely that textual data overstates uncertainty. Even the academics who built the policy uncertainty metric now accept that."

"#2. A lower effective tariff rate is good news for GDP growth and inflation. US growth is running around its trend pace, thanks to robust profits and the AI capex boom."

"And, while US inflation is likely to remain a bit sticky through 2026, recent data shows a gradual, bumpy journey back to the inflation target."

"#3. Rising policy uncertainty reinforces the idea that the Fed stays on hold over the next few months."

"Meanwhile, the action in markets continues under the surface. There is a “great rotation” underway, from growth and momentum, into value and emerging markets. That process has much further to run."

"The real test for investment markets in 2026 will come if inflation remains high, which would constrain the Fed. Or if profits start to wobble."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)