US Dollar: Supported by higher-for-longer Fed stance – TD Securities

§ 01 Executive Snapshot

• What: TD Securities forecasts a sustained increase in the US Dollar supported by a prolonged Federal Reserve stance.
• Who: TD Securities, Federal Reserve, Iranian conflict stakeholders.
• Why it matters: The outlook indicates potential stagflationary risks and inflationary pressures affecting monetary policy and economic growth.

§ 02 Key Developments

• TD Securities predicts the Federal Reserve will maintain its current stance throughout 2026 due to stagflationary risks.
• Core CPI inflation is expected to peak at 3.0% year-over-year in Q4 2026.
• The impact of high oil prices is anticipated to significantly affect headline inflation figures.

§ 03 Strategic Context

• The ongoing conflict in Iran is contributing to stagflationary risks, influencing US economic stability and growth.
• The Federal Reserve's approach is evolving amidst geopolitical tensions and changing market conditions, particularly concerning oil prices and supply chains.

§ 04 Strategic Implications

• The decision to hold rates is likely to maintain support for the US Dollar, impacting international trade and investment strategies.
• Long-term inflation expectations suggest that monetary easing may not occur until 2027, influencing market confidence and economic planning.

§ 05 Risks & Constraints

• Continued geopolitical conflicts, particularly in Iran, pose a risk to economic projections and could alter the Federal Reserve's policies.
• Supply chain disruptions and elevated oil prices may further complicate inflation management and economic recovery efforts.

§ 06 Watchlist / Forward Signals

• Monitoring developments in the Iran conflict will be critical for understanding potential shifts in economic forecasts.
• Future Federal Reserve communications regarding rate adjustments will signal the central bank's response to evolving economic conditions.