Fed outlook in 2026 'shrouded in uncertainty'
|Despite the ongoing federal government shutdown, which looks highly likely to oust the 2018/19 closure as the longest on record, we finally received some first tier economic data out of the US last week.
The delayed September inflation report came in slightly lower than expected, with the headline number falling to 3% for the first time since January.
This remains significantly above target, however, and has been for the past four years, with the Federal Reserve itself expecting inflation above 2% until 2028. None of this seems likely to stop the Fed from lowering rates again on Wednesday, or at its subsequent meeting in December.
Yet, the outlook for rates next year is shrouded in uncertainty, particularly given the near complete absence of reliable economic data amid the government shutdown.
We still think that the path of least resistance for the dollar is lower in the medium-term, and a more accommodative Fed in 2026 would merely support this view.
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