Fed Keeps Rates Steady as US Inflation Eases Amid Geopolitical Risks
US inflation has shown signs of easing, but upside risks remain due to energy prices and geopolitical developments. The July Consumer Price Index (CPI) report revealed that headline and core CPI continue to move lower, but both still exceed the Federal Reserve's 2% target.
According to UOB's Alvin Liew, inflation has improved, but it is too early to declare victory over inflation. He notes that while domestic demand conditions are softer, external shocks can impact the disinflationary trend.
Liew expects the Fed to keep rates on hold through 2026 before starting gradual rate cuts in 2027. In 2026, he predicts headline CPI will average around 3.5% and core CPI around 2.8%. The risk to the CPI outlook remains highly dependent on geopolitical developments in the Middle East.
If regional tensions continue to ease and energy prices remain stable or move lower, headline inflation could moderate further through the remainder of 2026.