Nomura Securities: Middle East Conflict Boosts Inflation Risks, Fed Rate Cut Expectations Pushed Back to September

On March 30, Nomura Securities adjusted its latest monetary policy expectations for the Federal Reserve, delaying the Fed’s rate-cut timing from the originally planned June and September to September and December.

This adjustment mainly stems from two core factors. First, the Middle East conflict has triggered new inflation pressures; second, the confirmation process for the appointment of Kevin Warsh, the Fed chair nominee, has also been delayed.

Specifically, Jeremy Schwartz, Nomura Securities’ chief U.S. economist, said that the Middle East conflict has driven up energy and bulk commodity prices, which may worsen imported inflation in the short term. Therefore, before the data becomes clearer, the Fed may temporarily hold back its pace of easing.

At the same time, the delay in the appointment process for the next Fed chair Kevin Warsh has also increased policy uncertainty, and the market needs to wait for clear signals after the new leadership officially takes office.

Although the current price pressures are believed to be temporary, the Fed will remain cautious in the short term. After all, the economic outlook is complicated and constantly changing, and even temporary price fluctuations may bring potential risks.

However, overall, policymakers still maintain a preference for easing. Nomura Securities expects that once the new Fed chair is in place, significantly loosening policy will be the top priority, in order to respond to possible signs of weakness in the labor market.

Against the backdrop of the current economic situation and the adjustment to policy expectations, Schwartz’s view is that, given that FOMC officials uphold a preference for easing policies, they may make asymmetric responses to even subtle signs of weakness in the labor market.

This also means that, compared with decision-making when the market is optimistic, officials are more sensitive to labor market weakness, and the actions they take will be more proactive.

#野村证券 # Federal Reserve policy expectations