Changing Our Fed Call: Hawkish Holds For Now, But Cuts On The Way

Natixis has pushed back its expectation for the first Fed rate cut to December 2026 due to persistent energy price risks stemming from Middle East instability. The firm maintains that while hikes are unlikely, the Fed will remain restrictive until energy shocks are proven to be contained.

Key Takeaways

• 1.Natixis has delayed its forecast for the Federal Reserve's first rate cut from September to December 2026, followed by another in January 2027.
• 2.The delay is primarily driven by conflict in the Middle East and expectations of higher-for-longer energy prices, which the Fed fears could pass through to core inflation.
• 3.Despite the delay in cuts, the bar for further rate hikes remains very high due to anchored longer-run inflation expectations and a stable but vulnerable labor market.

Table of Contents

• Cuts delayed, not denied
• Why not hikes?
• Longer-run inflation expectations remain anchored
• Consumer confidence has been weak, weighing on spending growth
• The Labor Market Heat Map
• What to watch for?

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