Fed: Expected to keep rates in 2026 – TD Securities

⦿ Executive Snapshot

• What: TD Securities revises its Federal Reserve call, projecting no rate cuts in 2026 and anticipating a hawkish shift in monetary policy.
• Who: TD Securities, Federal Reserve, incoming Fed Chair Warsh.
• Why it matters: The shift in expectations indicates a potential stabilization of the Dollar and reflects ongoing inflationary pressures despite geopolitical tensions.

⦿ Key Developments

• TD Securities now expects core CPI and PCE inflation to end 2026 higher than initial forecasts, indicating persistent inflation.
• The June FOMC is anticipated to adjust its projections hawkishly, with no easing expected for 2026.
• The easing bias in the FOMC statement is projected to be dropped in June, signaling a shift towards a more hawkish stance.

⦿ Strategic Context

• The Fed's decision comes amid ongoing geopolitical tensions, particularly the conflict in Iran, which continues to influence oil prices and inflation dynamics.
• The market's perception of the Fed's stance is evolving in response to global economic conditions, affecting the relative strength of the USD against other currencies.

⦿ Strategic Implications

• The immediate consequence is a stabilization of the Dollar as the Fed maintains a hold on interest rates, impacting global currency dynamics.
• Long-term, the Fed's projected easing in 2027 reflects ongoing uncertainties that may influence market sentiment and investment strategies.

⦿ Risks & Constraints

• Potential risks include regulatory challenges or unexpected economic developments that could alter inflation trajectories and Fed policy plans.
• Competition from global central banks adopting more aggressive monetary policies could impact the USD's relative strength against other currencies.

⦿ Watchlist / Forward Signals

• Key upcoming milestones include the June FOMC meeting, where significant policy adjustments are expected.
• Future developments in the Iran conflict and their impact on oil prices will be critical to watch as they influence inflation and Fed policy decisions.