New Delhi: The US Federal Reserve is expected to hold rates unchanged as inflationary spillovers from the US‑Iran conflict keep upside risks intact, a report said on Friday.
The report from Elara Capital said it has withdrawn its call for three Fed rate cuts totalling 75 basis points in CY26 and
It assigned a 20 per cent probability to a 25-basis point hike in December 2026 if the Strait of Hormuz remains closed until September, energy prices spike further and core personal consumption expenditures inflation rise upwards.
“We believe peak uncertainty regarding the US labour market has passed and hereon, the labor market is set to soften at a gradual pace,” the report said.
On the growth front, the risks are moderate and are likely to be visible with a lag of at least a year and hence are unlikely to be a focus for the FOMC in CY26 , the report added.
“With the US -Iran conflict leading to the surge in energy prices, the potential transmission channel to growth is likely to emerge from softening consumer demand supplemented by moderation in business spending , due to supply chain bottlenecks,” it added.
Tariffs along with surge in energy and food prices would keep inflation elevated and sticky, the firm said.
“A runaway inflation is not our base case scenario this time, because the support to private demand via fiscal transfer payments akin to CY22 is missing,” the report added.
Leaders across the world have started raising the alarm over the energy shortage due to the Iran war and the wider economic disruption that is being caused in its wake.
Asia is especially affected because of the region’s high dependence on energy and other critical supplies from the Gulf.
(IANS)
