Nominal growth exceeds expectations, but the cost is sticky inflation; this script is familiar.

According to a report from Danske Bank senior analyst Antti Ilvonen, the bank has revised its expectations for the Federal Reserve. It now expects the next policy adjustment to take place in December 2026 and March 2027, when rates will be raised by 25 basis points each time. Previously, Danske Bank expected the Fed to cut rates to 3.00%-3.25%. The adjustment to this forecast is based on an improvement in the outlook for U.S. nominal growth that is stronger than expected. Ilvonen said it is important to note that this shift is not driven solely by the Iran war; demand factors are supporting more structural inflation. At the same time, downside risks to the labor market have eased, AI-driven investment demand continues to support real growth and inflation, and fiscal policy is moving in an expansionary direction.