Fed: Later cuts as inflation persists – Rabobank

§ 01 Executive Snapshot

• What: Rabobank updates its forecast for the Federal Reserve's rate cuts due to persistent inflation and geopolitical developments.
• Who: Philip Marey, Senior US Strategist at Rabobank, and the Federal Open Market Committee (FOMC).
• Why it matters: The shift in rate cut expectations signals a change in monetary policy approach amidst rising energy prices and inflation concerns.

§ 02 Key Developments

• Rabobank now expects the first Fed rate cut in October 2026, shifted from September 2026.
• The second expected rate cut is now forecasted for January 2027, delayed from December 2026.
• Elevated energy prices are anticipated due to ongoing developments in the Middle East.
• The FOMC has moved away from an easing bias ahead of the new Chair, Warsh's first meeting.
• Several FOMC participants have publicly stated their positions regarding monetary policy.

§ 03 Strategic Context

• The FOMC's shift in policy reflects ongoing concerns about inflation, which is now viewed as more persistent than previously assessed.
• Geopolitical events, particularly in the Middle East, are significantly impacting energy prices, which have broader implications for inflation and economic stability.

§ 04 Strategic Implications

• The delay in expected rate cuts suggests a cautious approach by the Fed, indicating a potential tightening of monetary policy in response to inflation.
• Long-term operational implications may include altered investment strategies and market expectations as central bank policies adapt to new economic realities.

§ 05 Risks & Constraints

• Potential risks include regulatory challenges and the impact of geopolitical tensions on energy markets.
• Competition from global markets and inflationary pressures could complicate the Fed's policy effectiveness.

§ 06 Watchlist / Forward Signals

• Key timelines to watch include the FOMC meetings leading up to the expected rate cuts in late 2026 and early 2027.
• Future developments that could signal success or failure include changes in inflation rates and global energy price stability.