UOB’s Alvin Liew assesses United States (US) inflation and Federal Reserve (Fed) coverage after the July Client Value Index (CPI) report. Liew notes headline and core CPI stay above the Fed’s 2% goal however sees inflation step by step easing, with headline CPI averaging 3.5% and core 2.8% in 2026. Liew expects the Fed to maintain charges on maintain via 2026 earlier than beginning gradual cuts in 2027.
Inflation dangers and prolonged Fed pause
“The inflation outlook has improved however upside dangers stay, largely linked to vitality costs and geopolitical developments: Whereas headline and core inflation proceed to maneuver decrease and are in line with softer home demand situations, each stay above the Fed’s 2% goal.”
“General, whereas the Jul CPI report diminished speedy issues that US inflation is persistently excessive, it is usually too early to declare victory over inflation, and the resumption of disinflationary development is more likely to be on an uneven path and prone to exterior shocks.”
“We preserve a balanced near-term inflation outlook, anticipating headline CPI to common round 3.5% and core CPI round 2.8% in 2026, whereas additionally retaining our base case that the Fed will stay on maintain via 2026 earlier than resuming gradual charge cuts in 2027.”
“Unsurprisingly, the danger to the CPI outlook stays extremely depending on geopolitical developments within the Center East. If regional tensions proceed to ease and vitality costs stay steady or transfer decrease, headline inflation might reasonable additional via the rest of 2026.”
(This text was created with the assistance of an Synthetic Intelligence software and reviewed by an editor. Know extra.)
