Daily Voice: Another Fed rate hike possible, but prolonged tightening unlikely, says Waterfield Equities…

The latest market report highlights that According to Vipul Bhowar, Executive Director and Head of Equities at Waterfield Advisors, another Fed funds rate gain in early 2027 is possible, depending on the trajectory of core inflation, but a prolonged tightening cycle is not anticipated.

In the meantime, he anticipates India’s economic expansion to stabilise between 6.5 percent and 7 percent. This would still make India the fastest-growing major economy in the world, he stated in an interview with Moneycontrol.

Among sectors, Bhowar sees robust compounding potential in the insurance sector for patient market participants, fuelled by rising middle-class consumption, supportive regulatory reforms and digital innovation.

Do you see the US Treasury market as a key risk for global markets?

The United States Treasury market serves as the foundation of the global financial system, and the ongoing structural changes within this market represent the most significant macroeconomic variable affecting global markets today. When "risk-free" US sovereign debt provides competitive yields, it fundamentally reshapes global asset allocation strategies.

Elevated Treasury yields impose a rigid ceiling on global equity multiples and raise borrowing costs for corporations worldwide. This scenario can lead to compressed earnings margins, hindered capital expenditures, and consequently, increased market volatility.

Does the US fiscal position look unsustainable?

The escalating mandatory spending and unprecedented net interest expenditures—exceeding $1 trillion this year—are contributing to a structural imbalance. In the absence of substantial policy reforms, this growing debt burden poses a risk of displacing private investment and hindering future economic flexibility.

The Congressional Budget Office projects the federal deficit for 2026 to approach $2 trillion, which represents approximately 6 percent of Gross Domestic Product (GDP), resulting in publicly held debt surpassing 100 percent of GDP.

Do you expect two more rate hikes from the US The US central bank by the end of this year, followed by another hike in the first quarter of next year?

In September 2026, the The US central bank, led by Chairman Kevin Warsh, boosted interest rates by 25 basis points to a range of 3.75 percent to 4.00 percent. The dot plot indicated that 16 of the 18 FOMC members expect at least one more 25-basis-point hike this year, though only four anticipate two additional increases.

Persistent inflation, fuelled by high energy costs, justifies this tightening. Another rate gain in early 2027 is possible, depending on core inflation trends, but a prolonged tightening cycle is not anticipated. Thus, while another hike this year is likely, two additional increases are less probable.

Do you expect India's expansion to settle around 6.5–7 percent, while the recent 7.8 percent expansion rate is likely to be unsustainable?

India's economic expansion is anticipated to stabilise between 6.5 percent and 7 percent. The IMF forecasts a GROSS DOMESTIC PRODUCT expansion of 6.5 percent for fiscal years 2026 and 2027. While India has noted expansion rates nearing 7.8 percent, fuelled by post-pandemic effects, government spending, and pent-up demand, such high rates may not be sustainable due to diminishing base effects and global challenges like fluctuating crude prices and high interest rates.

That stated, a expansion rate of 6.5 percent to 7 percent would still make India the fastest-growing major economy worldwide.

What are the key factors driving the climb in the US dollar?

Elevated yields on United States Treasury securities are primarily influenced by ongoing inflationary pressures and increasing oil price marks, which attract global investment. Furthermore, heightened geopolitical instability prompts risk-averse market participants to seek the safety and liquidity provided by the US dollar.

Additionally, considerable foreign investments in US technology stocks and expenditures on artificial intelligence (AI) further bolster demand for the dollar. The relative resilience of the US economy, when compared to other G10 nations, reinforces the dollar's position as the preeminent global reserve currency.

Are you wary on equities primarily because of elevated crude prices and surging global bond yields, or are there other factors driving your view?

Elevated crude prices and rising global bond yields represent significant headwinds for the market. Coupled with ongoing geopolitical tensions in the Middle East and persistent inflationary concerns, the broader market at present lacks immediate catalysts to maintain these heightened valuations.

Consequently, adopting a defensive posture is advisable until there is improved visibility in earnings or a necessary time-correction in valuations occurs.

Do you see the beginning of a rate-hiking cycle in India as well?

A cycle of interest rate increases in India is anticipated to begin at the Monetary Policy Committee meeting in October 2026. The Reserve Bank of India (RBI) has kept the repo rate at 5.25 percent since February 2023, but rising domestic and global pressures require a shift.

Retail inflation stays above the 4 percent target, fuelled by oil price marks exceeding $100 per barrel and the depreciation of the indian rupee. With tightening global financial conditions, economists anticipate a 25 basis point gain, raising the rate to 5.50 percent and starting a new tightening cycle.

Do you believe the insurance sector presents a buying opportunity at current marks?

India stays a deeply under-penetrated market, with annual premium expansion forecast to accelerate to 6.9 percent between 2026 and 2030. Fuelled by rising middle-class consumption, supportive regulatory reforms, and digital innovation, the sector offers robust compounding potential for patient market participants.