Why a hawkish Fed isn't scaring Wall Street

US stocks have shown resilience as Wall Street increasingly pushes back expectations for near-term Federal Reserve rate cuts. Several major financial institutions have revised their forecasts for monetary easing, with some now expecting the Fed to keep rates unchanged throughout 2026, even as strategists remain broadly constructive on equities.

Wall Street pushes rate-cut expectations back

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 forecast that the Federal Funds rate will stay 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. It also projected the S&P 500 will reach 7,950 by mid-2027.

Standard Chartered attributed its constructive view to strong corporate earnings expectations and continued economic resilience despite elevated borrowing costs. It 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. For the full year, the bank expects growth to average approximately 2.1%, supported by artificial intelligence-related capital expenditure, a recovering labor market, and increased manufacturing activity.

Other banks have also delayed their easing timelines. Goldman Sachs pushed its forecast for the next Fed rate cuts into 2027, now expecting rates to remain unchanged throughout 2026 before 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 also moved its expected easing schedule. It now forecasts rate cuts in October and December 2026, followed by another reduction in January 2027, after previously expecting cuts to begin in September.

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

Other assets struggle with higher rates

While equities have largely absorbed the more hawkish outlook, other asset classes have been weaker. 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 pressure that higher interest rates can place on speculative assets.

Gold has also weakened. Futures recently fell 1.8% to around $4,173 an ounce after trading above $4,350 earlier in the week. The decline was linked to rising real yields and a stronger dollar, with demand weighed by the fact that gold offers no yield to investors.

The divergence has become more 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

Investors appear increasingly focused on earnings growth and corporate spending trends rather than relying on lower interest rates to justify valuations. Artificial intelligence investment remains a key driver 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 around 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 to be that rate cuts may be further away than previously expected, but many strategists believe strong earnings growth, economic resilience, and continued AI investment can help support equities in a higher-rate environment.