Key insights
- Nomura analysts now predict the first Fed rate cut in September 2026, delaying it from June, and anticipate only two cuts this year due to geopolitical volatility (Iran) and leadership changes at the Fed. This hawkish shift suggests a "higher for longer" environment, increasing near-term inflationary pressures. While the Fed maintains an easing bias, the current situation allows them to maintain a restrictive stance through the summer, negatively impacting US equities.
Investing.com -- The Federal Reserve is likely to postpone its highly anticipated pivot to monetary easing, according to a new "Policy Watch" report from Nomura.
Analysts have pushed back their forecast for the first rate cut from June to September 2026, citing a combination of geopolitical volatility and shifting leadership dynamics at the central bank. The firm now expects only two cuts this year, with the second occurring in December.
The primary catalyst for this hawkish shift is the ongoing conflict in Iran, which has introduced fresh inflationary pressures into the U.S. economy. As energy prices remain volatile and supply chains face regional disruptions, Nomura suggests that near-term price stability has become a more immediate concern for the Federal Open Market Committee (FOMC).
Compounding the current economic factors is a shift in the political calendar. The delayed confirmation of Chair nominee Kevin Warsh has diminished the immediate political pressure for a mid-year cut.
Nomura notes that while the incoming leadership is expected to prioritize easing eventually, the current vacuum and the "Iran War" inflation spike provide the Fed with a clear rationale to maintain a restrictive stance through the summer months.
Despite the delay, Nomura maintains that the Fed’s underlying bias remains tilted toward easing. FOMC officials, including current Chair Jerome Powell, have demonstrated an "asymmetric response" to economic data, showing a higher sensitivity to signs of labor market weakness than to temporary price spikes.
Analysts believe that the current inflationary pressures stemming from the Middle East are likely to be transitory. Once the leadership transition is finalized and the labor market shows further signs of cooling, the path for a September rate reduction will be cleared.
During the second quarter of 2026, investors should prepare for a "higher for longer" environment as the central bank navigates the dual headwinds of war-driven inflation and internal administrative transitions.