Fed Holds Rates as US Inflation Remains Above Target

US inflation is still above target but may be easing, according to UOB's Alvin Liew. The July Consumer Price Index (CPI) report shows headline and core CPI remain above the Fed's 2% target, averaging 3.5% and 2.8% in 2026.

Liew expects the Federal Reserve to keep rates on hold through 2026 before starting gradual rate cuts in 2027. However, he notes that inflation risks persist, mainly linked to energy prices and geopolitical developments.

While the July CPI report reduced immediate concerns about high US inflation, it is too early to declare victory over inflation, Liew says. The resumption of disinflationary trends will likely be uneven and susceptible to external shocks.