TD Securities economists Oscar Munoz and Eli Nir anticipate that the Federal Reserve (Fed) will maintain its current policy stance until September, as it evaluates the economic consequences of the ongoing Iran conflict and closely monitors inflation trends [1]. They forecast a total of 50 basis points (bps) in rate cuts during 2026, with an additional 25 bps reduction expected in March 2027, ultimately bringing the Fed funds rate to 3.00% [1]. However, the economists caution that persistent energy-driven inflation and divisions within the Federal Open Market Committee (FOMC) could delay the start of monetary easing, potentially resulting in higher interest rates for an extended period [1].
The path to easing is described as conditional on the economic fallout from the Iran shock, with the risk increasing that the Fed may remain on hold for longer than currently projected [1]. Federal Reserve Chair Powell has remained noncommittal regarding future policy moves but acknowledged ongoing discussions about shifting forward guidance to a more balanced, two-sided stance—a change reportedly favored by three regional Fed presidents who dissented in April [1]. Any hawkish shift in policy is expected to begin with adjustments to the Fed's statement language [1].
The high level of division within the FOMC, particularly in the context of the current oil shock, is highlighted as a significant challenge for the incoming Chair Warsh in achieving near-term rate cuts [1]. TD Securities maintains its base case for easing to resume in September, contingent on inflation normalizing and the economic impact from Iran remaining modest [1]. However, they acknowledge that the risk of the Fed staying on hold for longer is growing [1].
Upcoming remarks from President Williams are noted as a key event, especially regarding any comments on potential changes to the Fed's forward guidance language [1].
CONCLUSION
TD Securities sees growing risks that the Federal Reserve may delay rate cuts due to persistent inflation and geopolitical uncertainty stemming from the Iran conflict. While their base case still anticipates easing beginning in September, the outlook remains highly conditional and subject to change based on evolving economic data and FOMC dynamics.