TD Securities economists Oscar Munoz and Eli Nir are projecting stagnant US economic output through 2026, anticipating the Federal Reserve will maintain current interest rates for the remainder of the year. The forecast centers on persistent inflationary pressures stemming from ongoing oil market volatility and geopolitical tensions involving Iran. This scenario suggests the central bank will resist both rate cuts and hikes, adopting a wait-and-see stance as energy-related inflation proves more stubborn than previously expected. The prediction challenges market expectations that have been pricing in potential rate adjustments later this year.
Traders should prepare for extended policy stability as the Fed navigates between growth concerns and inflation risks. The combination of sideways GDP growth and sticky inflation creates a challenging environment for equities and fixed income markets, with energy sector volatility likely to drive shorter-term market moves.
FXnCO Insight
Position for a prolonged Fed pause by reducing rate-sensitive exposure and increasing allocations to energy-hedged instruments as oil volatility remains the dominant macro driver through year-end.
Source: FXStreet