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Nomura pivots away from Fed rate cuts in 2026 as inflation risks linger
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Nomura pivots away from Fed rate cuts in 2026 as inflation risks linger
May 22, 2026 1:55 AM

May 22 (Reuters) - Nomura has joined a growing chorus of brokerages expecting the U.S. Federal Reserve to hold interest rates steady in 2026, citing persistent inflation and skepticism that policymakers will rally behind rate cuts.

Fed officials are increasingly worried that the war in Iran could add to inflationary pressures, with a growing number open to raising interest rates if needed, pointing to a more hawkish policy backdrop for incoming chair Kevin Warsh.

Nomura, which had earlier expected 25-basis-point cuts both in September and December, said in a May 21 note that rising price pressures from the Iran war and a widening global memory chip shortage are spilling over into consumer prices and keeping inflation elevated.

Brokerages like Morgan Stanley and Barclays have ruled out interest-rate cuts from the Fed this year, citing the drag from higher oil prices linked to Middle East conflict and the boost from strong capital spending tied to artificial intelligence.

Kevin Warsh, who is set to be sworn in as Fed Chair on Friday, signaled at his confirmation hearing that he remains inclined toward rate cuts based on his economic outlook.

While strong growth, elevated inflation and easy financial conditions could eventually justify higher rates, Nomura does not expect hikes in the near term. 

However, "recent data and Fed commentary make us skeptical he can convince a majority of the FOMC to support rate cuts," Nomura said.

Markets are pricing in roughly a 58% chance the U.S. Federal Reserve will raise interest rates by at least 25 basis points by the end of the year, according to CME's FedWatch tool.

The U.S. Federal Reserve is next set to meet on June 16-17, 2026.

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