Key facts
- Rabobank forecasts a shift in the FOMC towards a more neutral stance.
- Elevated energy prices due to Strait of Hormuz disruptions are contributing to sustained inflation.
- Rabobank now expects the first Fed rate cut in October 2026 and a second in January 2027.
- Governor Waller's stance has shifted away from advocating for rate cuts.
- New Fed Chair Kevin Warsh faces a challenging economy with rising inflation.
Rabobank has revised its outlook on the Federal Reserve, anticipating a shift towards a more neutral stance within the FOMC, which will make it more challenging for the new Fed Chair, Kevin Warsh, to advocate for interest rate cuts in the near future. This internal dynamic is compounded by external factors, particularly the ongoing disruptions in the Strait of Hormuz, which are keeping energy prices elevated and contributing to sustained inflation. Rabobank now forecasts that the Strait will remain closed until September, leading to upward adjustments in energy price forecasts and, consequently, US inflation forecasts. As a result of these shifting FOMC dynamics and the persistent inflation outlook, Rabobank is adjusting its Fed view. Previously, they expected two rate cuts in 2026. Now, they forecast only one rate cut in 2026, shifting the first cut to October 2026 and the second to January 2027, while adding a rate cut to 2027. The report also notes a notable shift in Governor Waller's position, who previously advocated for rate cuts but has now changed his stance. The article mentions that Warsh has enlisted two outside associates for advice, one of whom was involved in a blueprint recommending significant restructuring of the central bank, including ideas like 'free banking'. New Fed Chair Kevin Warsh faces a challenging economy. Rising inflation, fueled by the Iran war's impact on energy and goods, is squeezing households. While AI investment boosts growth, it's not offsetting cost pressures. Policymakers are increasingly concerned about inflation, with some advocating for interest rate hikes, a stance potentially at odds with presidential expectations.