Asia Economics Comment: The Fed, El Niño, and AI

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Asia Economics Comment: The Fed, El Niño, and AI

3 July 2026

Asia Economics Comment Economics

The Fed, El Niño, and AI Asia

◆ Softer US nonfarm payrolls may lower near-term Fed hike expectations, easing Frederic Neumann

one source of pressure for Asian central banks contending with a stronger USD ChiefGlobalAsiaResearchEconomist,Asia Co-head

The Hongkong and Shanghai

◆ However, even if the Fed stays on hold, El Niño and AI-driven inflation risks will Bankingfredericneumann@hsbc.com.hkCorporation Limited

keep many Asian central banks firmly on the tightening path in 2H26 +852 2822 4556

Justin Feng

◆ In Asia, we expect the next hikes to come from the RBNZ (8 July) and BoK (16 Economist, Asia The Hongkong and Shanghai

July), with 25bp increases for both; with BI possibly in play as well (22 July) Banking Corporation Limited justin.feng@hsbc.com.hk

+852 22887108

Some breathing room for Asian central banks? Not so fast

Yesterday’s US nonfarm payrolls came in softer than expected, rising 57,000 in June versus the 113,000

Bloomberg consensus, while the unemployment rate printed at 4.2%, easing slightly from 4.3% the prior

month (see US Labor Market (Jun): Broadly in balance, 2 July 2026). Markets took the data as mildly

dovish, and OIS pricing for a rate hike at the next meeting at the end of this month pulled back.

That said, OIS markets still price in one full hike by year-end, while HSBC’s forecasts the Fed Funds

target range to stay unchanged in 2026 and 2027 (see Global Economics Quarterly: Crosscurrents, 22

June 2026). Many market participants also read the Fed as hawkish at the 16–17 June FOMC meeting

after it opened active discussions about the potential need for hikes later this year (see FOMC Multi-Asset

Reaction: Guidance ditched, changes pitched, 17 June 2026).