Fed to keep policy rate unchanged but a hike cant be ruled out 2026 07 29

Macro & FICC Research Nordic Alert 29 July 2026

Fed to keep policy rate unchanged – but a hike can't be ruled out Global key stories The sector rotation away from chip stocks continues to put pressure on global equity markets. Perhaps the summer's most talked-about chip company, South Korea's SK Hynix, continues its steep slide despite posting a record quarterly profit that still fell short of expectations, once again dragging the tech-heavy Kospi index down with it. The Kospi index is falling another 8% this morning after yesterday's drop of 11%. Japan's Nikkei is down just over 2%. Despite the recent declines, Japanese and Korean stock markets have risen more than in the US and Europe since the beginning of the year – see graph below.

In the US, the S&P 500 edged up 0.2%, even as the tech sector continued to underperform, with the Nasdaq slipping 0.2%. Most European stock markets posted gains yesterday. Microsoft and Meta report earnings today, followed by Amazon and Apple tomorrow. In Asia, Samsung Electronics, which accounts for roughly a quarter of the Kospi's weighting, also reports tomorrow.

Bond yields on both sides of the Atlantic continued to fall on Tuesday, but U.S. yields have turned up a few points overnight after reports of an Iranian surprise attack on U.S. targets in the Middle East. Oil prices are up USD 3-4 per barrel.

Movements in the foreign exchange market are generally modest, but dollar weakness can be noted this morning – despite the escalation in the Middle East. The Swedish krona strengthened 4-5 figs against EUR and USD yesterday and has seen small movements overnight. The Australian dollar weakened after a lower-than-expected CPI outcome.

Thawing relationship between Trump and Zelenskyy. Both presidents described yesterday's meeting at the White House as positive, and the talks now seem to be characterized by a much more constructive tone, with continued discussions about licensing Patriot production and American support to Ukraine. Israeli Prime Minister Benjamin Netanyahu also visited the Oval Office yesterday, where he afterwards described the meeting as "one of the best conversations he has had" with Trump.

High uncertainty ahead of tonight's Fed announcement. Market expectations for a rate hike in July rose sharply after new Fed Chair Kevin Warsh surprised with a more hawkish tone than expected at his first press conference last month. After that, the probability fell back after the unexpectedly low June inflation, but has risen slightly again in the wake of higher oil prices. The market is pricing in 8 basis points, corresponding to a 32% probability, for a hike. SEB expects the policy rate to be left unchanged.

It will be especially interesting to see how much guidance Warsh intends to give going forward. The new Fed Chair has long been skeptical of the Fed's communication strategy and transparency with the market. Instead of the Fed guiding the market, Warsh wants market expectations to provide the Fed with information to act on. If he keeps his word, it will mean a major shift for the market in an uncertain geopolitical situation. At the latest rate announcement, Warsh launched five working groups to "modernize" the Fed, where communication but also the entire policy process will be reviewed – can we get an update as early as tonight? Read our preview here.

Nordic key stories The Swedish GDP indicator rose sharply in both April and May, which indicates a strong second quarter, although the June outcome will be weak. Part of the strength reflects a recovery from the weak first quarter, but growth indicators as well as the economic tendency survey indicate that the recovery is gaining momentum. The greatest uncertainty continues to lie in the state of the household sector, but clearer signs seem to be emerging of an upshift in recent months. The flash GDP outcome is volatile and therefore does not provide a reliable picture of final GDP (to be published on 28 August), but incoming data continues to provide support for our growth forecast for 2026 of 2.6% – well above the Riksbank's 2.2%.

Today's key events For graphs and analysis of the week's most important data, click here.