Archive

Fed: Rate Cuts Rolling Away

• Pricing for Fed rate cuts in 2026 has been trimmed by ongoing economic resilience and a fairly uncontroversial appointment of Kevin Warsh as the Fed’s next Chair.
• Mean pricing still covers two cuts, close to the BoE, despite both being on hold and some other central banks turning hawkish. Delaying cuts until mid-year isn’t enough.
• We see excess demand and inflation surviving, preventing policy easing. Trump’s Chair can sell this stability. Temporal decay of the dovish skew would also roll rate cuts away.

By Philip Rush

RBA Hikes Into Inflation's Resurgence

• The RBA hiked by 25bp to 3.85%, above some expectations, as inflation reaccelerated and is judged likely to remain above target.
• Stronger-than-expected private demand, a tight labour market and high unit labour costs raise the risk of further rate hikes if inflation stays sticky.
• Future moves are data-dependent: further tightening remains on the table, but an extended pause is possible if inflation and demand clearly ease.

HEM: Feb-26 Views & Challenges

• Policymakers have broadly signalled caution against cutting too far, feeding pricing for prolonged pauses.
• Resilient output, expanding credit, and the UK’s unbroken excess inflation problem should prevent further cuts.
• Risks from rising unemployment eased with stabilisation after a bad round of releases during December.

HEW: Markets Making Opinions

• The falling USD and surging precious metals prices don’t fit the fundamental narratives of lazy strategists seeking to extrapolate moves into spurious trends.
• Macro developments have been relatively benign, with resilient real activity shown in euro area GDP and surveys. Looser conditions pose upside risks to UK shelter prices.
• Next week’s ECB and BoE decisions are set for no change rate outcomes, and we expect that will also broadly apply to guidance. We still expect no more cuts from either bank.

By Philip Rush