Recent analyses from TD Securities and UOB highlight a consensus that the Federal Reserve (Fed) is likely to keep policy rates unchanged through 2026, with both institutions revising their outlooks in response to persistent inflation and evolving global dynamics. TD Securities strategists have become less bearish on the US Dollar (USD) in the near term, citing the Fed's decision to stay on hold, positive US labor data, and strong equity performance in April as factors supporting a range-bound Dollar. However, they maintain a forecast for a weaker USD in 2026, pointing to asymmetric downside risks from Iran-related developments and the expectation that global interest rates will converge toward US levels, which could weigh on the Dollar. They specifically note that the DXY index level of 98.00 has served as a barometer for the reopening of the Strait of Hormuz, and anticipate the USD will sustainably trade below this level once the strait reopens [1].
UOB’s Senior Economist Alvin Liew has revised the Fed outlook following higher-than-expected US inflation data, now projecting that the Fed will keep rates unchanged through 2026 before implementing two rate cuts in 2027. Liew expects the federal funds target rate to end 2026 at 3.75% and 2027 at 3.25%. UOB’s forecast reflects expectations that inflation pressures will only begin to ease meaningfully in the first half of 2027, reinforcing the view that the Fed will maintain a cautious stance. The report also notes that while domestic demand is being weighed down by rising energy costs, recent hiring data for March and April have exceeded expectations. UOB has revised its US CPI forecasts higher for 2026, with risks still biased to the upside and inflation remaining above the 2% target. This persistent inflation is seen as complicating the policy outlook and potentially delaying any easing cycle further [2].
Both sources emphasize that the Fed’s extended pause is driven by ongoing inflationary pressures and global economic factors. TD Securities highlights the potential for a weaker USD in 2026 due to global rate convergence and geopolitical developments, while UOB underscores the likelihood of a cautious Fed response given the balance of risks tilting toward higher prices. UOB also mentions the need for consensus among Fed policymakers regarding the future direction of monetary policy [1][2].
CONCLUSION
Both TD Securities and UOB expect the Federal Reserve to maintain its current policy rate through 2026, with easing likely delayed until 2027 due to persistent inflation and global rate dynamics. The US Dollar is projected to face downside risks in 2026 as global rates converge and geopolitical factors play out. Market participants should anticipate a prolonged period of policy stability, with any significant easing or Dollar weakness likely deferred until inflation pressures subside.