TD Securities economists Oscar Munoz and Eli Nir expect the US Federal Reserve to keep policy unchanged until September while it assesses the Iran conflict and tracks inflation. They say persistent energy-led inflation and divisions within the Federal Open Market Committee (FOMC) could delay rate cuts and keep the Fed funds rate higher for longer.<\/p>\n
They describe Chair Jerome Powell as noncommittal on the future policy path, while noting discussions about moving forward guidance to a more two-sided stance. They report that three regional Fed presidents dissented in April and favoured this change, which would likely start with adjustments to the policy statement language.<\/p>\n
They project 50 basis points of rate cuts in 2026, plus a further 25 basis points in March 2027. They also set out an alternative path of 50 basis points of cuts in September and December and an additional 25 basis points in March 2027, ending with a Fed funds rate of 3.00%.<\/p>\n
They state that any return to easing in September depends on inflation normalisation and limited economic fallout from Iran. They add that upcoming public remarks by New York Fed President John Williams will be monitored for comments on possible statement language changes.<\/p>\n
The Federal Reserve is likely to remain on hold until at least September as it evaluates the ongoing conflict with Iran. This comes as we digest the latest April CPI data, which showed a stubborn 3.8% headline inflation figure, surprising those who expected a faster decline. Traders should therefore reconsider any positions that bet on interest rate cuts happening this summer.<\/p>\n
The primary reason for this caution is the sustained pressure on energy markets, which has kept crude oil prices elevated above $105 a barrel since the initial shock back in March 2026. This is feeding directly into inflation, complicating the Fed’s path forward. We saw a similar dynamic unfold in 2022, when geopolitical events caused an energy spike that forced central banks to become more aggressive.<\/p>\n
Given this outlook, we believe options pricing on Secured Overnight Financing Rate (SOFR) futures for the summer months may be too dovish. Positioning for a “higher for longer” scenario could involve selling futures contracts for the third quarter of 2026. This strategy bets that the market will have to price out premature expectations of a rate cut.<\/p>\n
The deep divisions within the FOMC, highlighted by the three dissenting votes at the April 2026 meeting, add another layer of uncertainty. This suggests that implied volatility in the rates market is likely to increase ahead of the next few meetings. Buying volatility through instruments like straddles on Treasury futures could be a prudent way to trade the potential for a surprise policy statement.<\/p>\n
A patient Fed typically leads to a flatter yield curve, as short-term rates remain anchored while longer-term growth concerns can emerge. We see an opportunity in yield curve flattening trades, which would profit if the gap between 2-year and 10-year yields narrows further. Traders should watch for any hawkish Fedspeak this week, particularly from President Williams, as a potential trigger.<\/p>\n
Create your live VT Markets account<\/a>\u00a0and\u00a0start trading<\/a>\u00a0now. <\/b><\/p>\n","protected":false},"excerpt":{"rendered":" TD Securities expects Fed holds until September; Iran conflict, energy inflation, FOMC divisions may delay cuts.<\/p>\n","protected":false},"author":38,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[46],"tags":[],"class_list":["post-46553","post","type-post","status-publish","format-standard","hentry","category-live-updates"],"acf":[],"aioseo_notices":[],"featured_image_src":null,"featured_image_src_square":null,"author_info":{"display_name":"josephine","author_link":"https:\/\/www.vtmarketsglobal.com\/en\/author\/josephine\/"},"_links":{"self":[{"href":"https:\/\/www.vtmarketsglobal.com\/en\/wp-json\/wp\/v2\/posts\/46553","targetHints":{"allow":["GET","POST","PUT","PATCH","DELETE"]}}],"collection":[{"href":"https:\/\/www.vtmarketsglobal.com\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.vtmarketsglobal.com\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.vtmarketsglobal.com\/en\/wp-json\/wp\/v2\/users\/38"}],"replies":[{"embeddable":true,"href":"https:\/\/www.vtmarketsglobal.com\/en\/wp-json\/wp\/v2\/comments?post=46553"}],"version-history":[{"count":0,"href":"https:\/\/www.vtmarketsglobal.com\/en\/wp-json\/wp\/v2\/posts\/46553\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.vtmarketsglobal.com\/en\/wp-json\/wp\/v2\/media?parent=46553"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.vtmarketsglobal.com\/en\/wp-json\/wp\/v2\/categories?post=46553"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.vtmarketsglobal.com\/en\/wp-json\/wp\/v2\/tags?post=46553"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}