Fed: Steady policy with later cuts – TD Securities

TD Securities’ Oscar Munoz and Eli Nir argue that a stable US labor market and contained inflation should keep the Federal Reserve on hold in the near term, even as growth remains firm. They still project 75 basis points of Fed easing in 2026, skewed toward the second half, contingent on inflation resuming its path toward 2%.

Stable jobs and soft core inflation

"Next week's February jobs report is likely to provide more signs of labor market stabilization, with the UE rate remaining at 4.3%. Our preliminary core CPI forecast at 0.3% m/m points to stabilization in underlying inflation with strength mostly owing to lingering tariff passthrough."

"A steady labor market together with modest signs of underlying inflation normalization in February should keep the Fed on the sidelines for now. We continue to look for 75 basis points of easing in 2026."

"Furthermore, our early tracking for the February CPI report supports the view that inflation remains elevated partly due to ongoing tariff passthrough. In effect, we look for core CPI inflation to print a "soft" 0.3% m/m increase in February resulting from a strong showing in core goods inflation."

"We continue to look for 75 basis points of easing in 2026, with those rate cuts skewed toward the second half of the year. Our thesis for further Fed easing hinges on a constructive outlook for inflation."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)