TD Securities economists report that the Federal Open Market Committee (FOMC) has kept monetary policy unchanged, with Chair Powell downplaying the significance of the Summary of Economic Projections (SEP) [1]. According to TD Securities, the Fed's patience regarding inflation normalization is expected to expire by late summer, as an incoming oil shock is anticipated to temporarily increase headline inflation [1]. The economists note that the Fed will likely look past this oil shock if tariff pass-through effects begin to abate, and emphasize that long-term inflation expectations will be crucial in allowing the Fed to observe economic developments in the near term [1].
TD Securities maintains a more optimistic outlook for inflation outcomes by the third quarter of the year, projecting that the month-over-month inflation profile will permit the Fed to resume policy normalization [1]. Their forecast calls for three 25 basis point rate cuts, implemented quarterly from September 2026 through March 2027 [1]. However, they acknowledge that rising geopolitical uncertainty, particularly related to energy prices and the ongoing Middle East conflict, increases the risk that the Fed may further delay easing measures this year [1].
The evolution of the Middle East conflict is cited as a key factor that will influence the Fed's policy decisions in the coming months, with TD Securities highlighting the potential ramifications for energy prices and inflation [1].
CONCLUSION
TD Securities expects the Fed to begin rate cuts in September 2026, but warns that geopolitical risks and energy price volatility could lead to further delays. The outlook remains cautiously optimistic for inflation normalization by late summer, though market participants should monitor developments in the Middle East for potential policy shifts.