Rabobank’s Senior US Strategist Philip Marey notes that the FOMC left the federal funds rate unchanged in March and still projects one cut in 2026, despite higher inflation and growth forecasts. Rabobank now expects two cuts, in September and December, versus three previously, but warns that further escalation in the Iran conflict could lead to another cut being removed from its 2026 profile.

Rabobank revises Fed easing expectations

"Although the FOMC raised its inflation projections, the Committee still expects to make one rate cut this year. This suggests that they expect to look through the temporary rise in energy prices."

"Given the sanguine reaction of the FOMC to the inflationary impact of the war with Iran, we drop only one rate cut from our forecast for 2026. This means that we now expect two rate cuts, one in September and one in December."

"Before the war with Iran, we expected three rate cuts this year: in June, September and October. As we signalled in our FOMC update and our FOMC preview for March, the risk to our long-held baseline forecasts of three rate cuts in 2026 was toward later and fewer, because of the war."

"With two rate cuts we remain on the dovish side of the market consensus. Keep in mind that once Warsh becomes the new Chair, he will try to convince the Committee to make more than one cut."

"Therefore, depending on how the war develops, we could be dropping another rate cut from our forecasts in the coming weeks."

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