TD Securities’ Oscar Munoz and Eli Nir expect the Federal Reserve to keep the Fed funds rate on hold throughout 2026 as US growth moves sideways and inflation stays elevated. They argue the recent jobs report reduces the risk of a July hike and see any policy move this year more likely to be a hike than a cut, with data dependence emphasized under Chair Warsh.

Fed seen on extended policy hold

"The jobs report likely does not alter the Fed's thinking. Underlying employment trends remain healthy, allowing the Fed to stay on hold indefinitely while focusing on the inflation mandate. The lower risk of acceleration in the labor market should also close the door to a July rate hike."

"The FOMC minutes this week could provide additional insight into the policy discussion, but the risk is that it is also pared back as part of Warsh's efforts to limit forward guidance."

"Waller in a panel on Monday will be the Fedspeak highlight of this week. He has not yet commented on future policy since the June FOMC, and choosing not to do so again could signal he is following Warsh's lead with limited forward guidance."

"We expect the Fed to remain on hold over our forecast horizon. Inflation should remain high for the rest of the year, and the labor market has stabilized, allowing the FOMC to shift focus to its inflation mandate. If the Fed were to move this year, we believe that move is more likely to be a hike than a cut."

"Under a new management that espouses a blurrier reaction function, data dependence will gain prominence for determining the path ahead for monetary policy."

(The technical analysis of this story was written with the help of an AI tool. Know more.)