Federated Hermes: Weekly Market’s Wrap

January 16, 2026

Powell takes a stand

The criminal investigation into Chair Powell raises uncertainty for investors ahead of January’s Federal Open Market Committee (FOMC) meeting and, in our view, increases the probability that the next rate cut will not take place before Chair Powell’s term ends. We expect much of the FOMC will rally behind him and it seems the market has been inclined to agree with Chair Powell as well.

The immediate broader reaction has been a weaker dollar; US Treasury yields up and steeper; and stock futures lower. Our view is that this suggests a possible resurgence of the ‘sell America’ narrative that emerged in April last year following the Trump Administration’s initial tariff policy announcement; noting too that a steeper curve and higher long-term yields contradict the Trump Administration’s aims of lowering long-term yields.

In the liquidity markets, short-term interest rates rose modestly as market participants pushed out easing expectations to the middle part of 2026. The January press conference should be interesting, and the next few months will certainly be significant for Fed independence. Although the market reaction calmed during morning trading, we believe the strength of the early response signals potential future ramifications should the investigation rise to the point of an indictment of Federal Reserve leadership.

Martin Schulz, Group Head of International Equities at Federated Hermes

Japan Calls Snap Election

Reports that recently elected Japanese Prime Minister Takaichi may call snap elections led to a weakening yen this week.  Further expansionary fiscal policy and uncertainty on the political front highlight the existing structural headwinds the country faces including negative real yields and an already large debt burden. The new PM wants to leverage her current sky-high approval rating (which stands at over 75% after her public sparring with China) to potentially gain seats for the Liberal Democratic Party, regaining control over the lower house over an unprepared Democratic Party for the People opposition party.

Stocks reacted positively bidding up the “Takaichi Trade” that include aerospace and defense, nuclear, cyber, and domestic exposure.  While we have seen some yen depreciation, Chinese export restrictions, and increasing inflationary pressures could negatively affect near-term Japanese households and business confidence, ensuring longer term domestic political unity could well help her negotiating position internationally, especially with the upcoming Japan-US summit. Risks we are watching include domestic political gridlock and further, unwanted yen depreciation.

Damian McIntyre, Head of Multi-Asset Solutions Team at Federated Hermes

Positioning in Volatile Times

Geopolitical headlines can often create short-term volatility in the market.  While this can create fear and confusion for investors, it is important to discern whether a headline could impact long-term economic growth, or if it is merely noise. The 2026 market has the potential for both a strong economy and strong earnings, therefore we look at periods of volatility as an opportunity to increase equity allocations.