CITIC Expects Fed to Hike Only Once More, Warns of Hong Kong Rate Pressure
SingTao · 1 SOURCESabout 2 hours ago3 MIN
Summary
CITIC Securities International Chief Economist Leif Eskesen has cautioned that market expectations for the Federal Reserve to continue raising interest rates are overly aggressive, predicting the central bank will hike at most one more time without launching a new tightening cycle . While recent inflation has rebounded on the back of oil prices and core PCE inflation remains well above the 2% target, Eskesen noted that the US labor market has reached equilibrium with the unemployment rate stable around 4.1%, meaning wage-driven inflation pressures have subsided . Looking ahead, CITIC Securities forecasts US economic growth at 2.2% this year, slowing to 2% in 2027 before recovering to 2.2% in 2028, broadly in line with potential output . Eskesen warned that rising US government debt as a percentage of GDP will increase fiscal risks, prompting investors to demand higher risk premiums on US Treasuries, which will transmit directly to Hong Kong under the linked exchange rate system and exert sustained upward pressure on local short-term interest rates .
Key Points
- US labor market has achieved balance with unemployment stable at 4.1%, eroding labor-driven inflation pressures
- Core PCE inflation remains significantly above the Fed's 2% target despite recent oil price-driven rebound
- CITIC forecasts US GDP growth of 2.2% in 2026, 2% in 2027, and 2.2% in 2028, near potential output levels
- The "Magnificent Seven" tech stocks account for over 30% of S&P 500 market capitalization and contributed 50% of earnings growth
- Approximately one-third of US GDP growth in 2023 came directly from AI-related capital expenditure
- US government debt-to-GDP ratio continues rising with no immediate default risk but heightened fiscal concerns
- Central banks globally are reducing Treasury holdings and increasing gold allocations to diversify reserves
- Treasury market buyers have shifted toward leveraged hedge funds, raising margin call risks that could trigger forced selling
- Taiwan's economy grew over 8% in 2023 with two-thirds attributable to AI-related momentum
- Consumption growth gap between highest and lowest-income 20% of households widened post-pandemic
Why It Matters
For Hong Kong businesses and homebuyers with mortgages linked to the Hibor, the direct transmission of elevated US interest rates through the linked exchange rate system means borrowing costs will remain elevated for an extended period . The growing concentration of global economic growth in AI-related sectors and a handful of mega-cap technology companies creates vulnerability; a reversal in the AI investment cycle could simultaneously jolt US markets, Asian supply chains, and economies like Taiwan that derive two-thirds of their growth from AI-related activity .
For Hong Kong businesses and homebuyers with mortgages linked to the Hibor, the direct transmission of elevated US interest rates through the linked exchange rate system means borrowing costs will remain elevated for an extended period . The growing concentration of global economic growth in AI-related sectors and a handful of mega-cap technology companies creates vulnerability; a reversal in the AI investment cycle could simultaneously jolt US markets, Asian supply chains, and economies like Taiwan that derive two-thirds of their growth from AI-related activity .