ING’s James Knightley reports that expectations for Federal Reserve policy easing in 2026 have been reduced, with anticipated rate cuts moving from 60 basis points prior to military operations in Iran to 40 basis points currently, due to higher near-term US inflation and resilient economic growth making early rate cuts less likely [1]. ING has revised its forecast for Fed rate cuts, now expecting them in September and December rather than June and September [1]. Knightley highlights that upcoming CPI, PCE, and GDP data will be crucial in determining how much further markets price out Dollar-negative policy easing [1].
Knightley notes that energy prices are currently a focal point for markets, with their inflationary impact expected to be more relevant for the March CPI report. For the February CPI, ING is above consensus and expects lingering upward pressure from tariffs on goods prices [1]. The January core PCE deflator is projected to show a 0.4% increase, but Knightley suggests this data is less impactful as it lags behind next week's CPI release [1].
Regarding GDP, Knightley expects the 4Q GDP revisions to show little change from the initially reported 1.4% annualized print. While consumer spending and business capital expenditures were firm, federal government spending was a drag on growth due to a six-week-long government shutdown [1]. Rising imports are expected to weigh on 1Q growth and imply increased tariff revenues, which may add to price pressures in the economy [1].
Overall, ING’s analysis suggests that higher inflation and resilient growth are delaying Fed rate cuts, with market focus shifting to upcoming economic data releases to gauge future policy direction [1].
CONCLUSION
ING has pushed back its forecast for Federal Reserve rate cuts to September and December, citing higher inflation and strong economic growth. The market is now pricing in fewer cuts for 2026, and upcoming CPI, PCE, and GDP data will be key in shaping expectations. Rising energy prices and imports are expected to add to inflationary pressures, further influencing Fed policy outlook.