A U.S. budget standoff could push the Federal Reserve to pause rate hikes, RBC Wealth Management strategist Frédérique Carrier warned. She said two other developments — rising global central-bank hawkishness and stretched tech valuations — also raise the odds the Fed slows its tightening cycle.

Carrier's outlook: pause odds climb if shutdown drags Frédérique Carrier, head of strategy for Europe and Asia at RBC Wealth Management, flagged a specific near-term risk: a prolonged U.S. budget standoff could push the Fed toward a pause. She noted markets have shown resilience so far but warned that delays to the budget process — and the real economic stress they can cause — increase the odds the Fed will slow the pace of tightening. Key points Carrier made: - Short-term interest-rate futures and swaps pricing have moved sharply during previous shutdown threats. - If fiscal disruption dents demand or raises market volatility, the Fed may choose to hold rates steady to assess the fallout. Hawkish central banks, but the Fed could still lean hard Carrier said central banks have grown more hawkish across regions. She told Bloomberg Daybreak that the move toward tighter policy is visible in several major economies. Her takeaway: broader hawkishness raises global borrowing costs and supports a higher-for-longer narrative, but it doesn't rule out an aggressive Fed cycle if U.S. inflation remains stubborn. Markets and tech valuations: resilient but vulnerable Carrier pointed out that equity markets, particularly tech, have so far absorbed headline risks, but valuations look stretched in areas driving recent gains. High valuations can magnify the effect of policy uncertainty — a market drawdown could increase the cost of tightening and potentially nudge the Fed toward caution if losses spread to the broader economy. Europe's fiscal picture enters the mix Carrier also raised Europe's fiscal uncertainty as a contributor to global risk, noting that weakness or policy missteps there would add to the case for caution in the U.S. and elsewhere. European fiscal strain can tighten financial conditions and increase global uncertainty, which in turn could influence the Fed's decision-making.

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Carrier said an aggressive Fed cycle remains possible, but a budget standoff, global hawkishness and stretched tech valuations could tilt the balance toward a pause.

This article was created with AI assistance.