Nomura Securities joins a group of brokerages in believing that the Federal Reserve will not adjust its benchmark interest rate in 2026. The persistently high inflation level and the difficulty in building consensus on interest rate cuts at the policy level are the core reasons for their judgment.
As the conflict in Iran escalates and inflation risks rise, more and more Federal Reserve officials are indicating that they will raise interest rates if necessary, and incoming Federal Reserve Chairman Kevin Warsh will face a hawkish policy environment.
Nomura SecuritiesPreviously, it was estimated that the Federal Reserve would cut interest rates by 25 basis points in September and December respectively.In a research report released on May 21, the institution revised its view, predicting that the conflict in Iran would push up oil prices, and coupled with the continued widening of the global memory chip supply gap, the dual pressure would gradually be transmitted to consumer prices, and inflation would remain unable to fall.
Morgan Stanley, Barclays, and other institutions have also ruled out the possibility of an interest rate cut this year.The situation in the Middle East has driven up crude oil prices, while capital expenditure in the field of artificial intelligence remains robust, both of which have provided support for prices.
Warsh will be officially sworn in on Friday. During his nomination hearing, he stated that, based on his own economic assessment, he still leans towards pushing for interest rate cuts.
Nomura Securities analysis points out that given strong economic growth, high inflation, and loose financial conditions, the Federal Reserve theoretically has room to raise interest rates, but...It is not expected that the government will raise interest rates in the short term.
On the other hand, Nomura Securities expects,It will be extremely difficult for the current chairman to secure the support of a majority of members of the Federal Open Market Committee for a rate cut..
Data from the CME Group's Federal Reserve interest rate watch tool shows that market pricing indicates that...The probability of the Federal Reserve raising interest rates by at least 25 basis points by the end of 2026 has reached 58%.The Federal Reserve's next policy meeting is scheduled for June 16-17, 2026.
As inflationary concerns stemming from the conflict in Iran sweep across Wall Street, U.S. Treasury yields have climbed to 19-year highs, approaching levels seen before the financial crisis.
Macquarie Securities strategists said,The Federal Reserve needs to release a hawkish statement before its June policy meeting.This was intended to stabilize rising bond yields. Even with a neutral policy stance announced at the June meeting, it was difficult to quell inflation expectations and stabilize long-term US Treasury yields.
The 10-year US Treasury yield reached 4.65% this week, a new high for the year, breaking through the key 4.5% level. Morgan Stanley's chief investment officer, Michael Wilson, believes this level will be a warning sign of a stock market downturn. The 30-year US Treasury yield hit its highest level since 2007, and the yield on Japan's 30-year government bonds also reached a record high.
Macquarie Securities points out that the overnight dollar index swap forward curve only weakly predicts one rate hike this year. For the Federal Reserve to allay market concerns about inflation, its statements must be stronger than currently expected. The yield on the highly policy-sensitive 2-year Treasury bond has been consistently higher than the real federal funds rate since March 10th.
With less than a month until the June interest rate meeting, the mainstream market expectation is for an interest rate hike this year, with maintaining the current rate being the second most likely scenario. The probability of a rate cut this year is only slightly above 1%. In contrast, at the beginning of the year, the market originally predicted two to three rate cuts throughout the year.
This interest rate decision will be announced for the first time by the newly appointed Chairman Warsh. Macquarie believes the Federal Reserve cannot delay its policy shift.Speeches by officials before June 6 will be a key window for releasing hawkish signals.
To gain market recognition of the determination to combat inflation, traditionally dovish voting members need to take the lead in making hawkish statements. Philadelphia Fed President Anna Paulson previously stated that it is reasonable for the market to consider keeping interest rates flat or even raising them.
Macquarie warns that if the Federal Reserve fails to convey a hawkish stance in a timely manner, the market will perceive the policy response as lagging, the inflation risk premium will rise further, and the yield curve will steepen again.
