TD Securities strategists revise its Federal Reserve (Fed) call, now projecting no rate cuts in 2026 and expecting the next Federal Open Market Committee (FOMC) move to still be a cut rather than a hike. The bank sees core CPI and PCE inflation ending 2026 higher, a hawkish shift in the June SEP, and the FOMC dropping its easing bias. The Fed’s stance leaves TD less bearish on the Dollar, though a gradual USD decline is still forecast for 2026.

Fed repricing supports relative Dollar resilience

"We are revising our Fed call and no longer expect rate cuts in 2026. With the Iran conflict in a stalemate, oil prices still high, and supply chains stressed, we no longer see inflation progress as feasible this year. Additional easing in 2027 is still our base case once impacts from Iran subside."

"Our new inflation outlook has core CPI and PCE inflation ending 2026 higher than they started. The SEP projections at the June FOMC will likely be adjusted hawkishly with the median official looking for no easing in 2026."

"We also expect that the FOMC statement's easing bias will be dropped in June, a win for the hawks. Incoming Fed Chair Warsh will likely support the change as he garners credibility with the majority of the Committee."

"The Fed staying on hold makes us less bearish on the USD than before. However, we still maintain a downward USD forecast path in 2026 on asymmetric USD risks owing to developments in Iran along with the Fed maintaining a relatively less hawkish stance vs global central banks."

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