TD Securities economists Oscar Munoz and Eli Nir are forecasting stagnant US economic growth throughout 2025, warning that persistent oil price pressures and ongoing Iran-related geopolitical tensions are creating a stagflationary environment. The combination of sideways output growth and stubborn inflation is expected to force the Federal Reserve into an extended holding pattern on interest rates, preventing the monetary policy easing many market participants had anticipated for this year.
This assessment carries immediate implications for dollar-denominated assets and currency markets, as prolonged higher rates typically support the greenback while pressuring emerging market currencies. Fixed income traders should prepare for continued volatility as the usual inverse relationship between growth and inflation breaks down. Equity markets may face headwinds from the dual threat of stalled economic expansion and elevated borrowing costs, particularly in rate-sensitive sectors like technology and real estate.
FXnCO Insight
Traders should position defensively for a stagflationary scenario by reducing exposure to growth-dependent assets and monitoring oil price movements as a leading indicator for Fed policy trajectory.
Source: FXStreet