TD Securities economists Oscar Munoz and Eli Nir expect the Federal Reserve (Fed) to stay on hold until September as it assesses the Iran conflict’s impact and monitors inflation. They project 50 bps of cuts in 2026, plus 25 bps in March 2027, but warn that persistent energy-driven inflation and internal Federal Open Market Committee (FOMC) divisions could delay easing and keep the Fed funds rate higher for longer.

Easing path conditional on Iran shock

"Powell was noncommittal on future policy but noted discussions about shifting forward guidance to a more two-sided stance, a change favored by three regional Fed presidents who dissented in April. As expected, any hawkish shift would likely begin with statement language."

"The high degree of division on the Committee amid the unfolding oil shock underscores how difficult it will be for soon-to-be Chair Warsh to achieve cuts in the near-term. We expect that the FOMC can still resume easing in September on inflation normalization — conditional on more modest economic impacts from Iran. However, the risk is growing that the Fed remains on hold for longer."

"We look for 50bps total of easing this year in September and December with an additional 25bps cut in March 2027, ending with a Fed funds rate at 3.00%. However, we acknowledge the risk is growing around a Fed that remains on hold for longer."

"Post-FOMC Fedspeak this week will be highlighted by President Williams — with any comments on the language change discussion being key to watch."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)