Nomura's Rob Subbaraman Sees No Fed Rate Hike in 2026 Base Case

Nomura's head of global macro research and co-head of global market research, Rob Subbaraman, said the base case is that the Federal Reserve will not raise rates this year, but warned that if inflation rebounds, markets could face the risk that a delayed hike would require multiple increases, according to Jiemian News. He said tariff-driven inflation is fading, wage growth has slowed slightly, and U.S. inflation has likely peaked; June consumer price index and producer price index readings were mild, while the upcoming personal consumption expenditures inflation rate is likely to ease. Subbaraman added that changes to the methodology for some key PCE components could lower core PCE by about 0.2 percentage point. He said the Fed, under new Chair Kevin Warsh, has repeatedly emphasized price stability, central bank independence and sticky inflation risks, but Nomura does not think Warsh is eager to raise rates. Subbaraman cited the U.S. midterm elections in November as one factor limiting room for near-term tightening, and said the Fed has formed a working group to study how artificial intelligence could transmit to inflation. He compared the situation with the 1990s internet boom, saying the Fed may again avoid overreacting to AI-led investment. He also warned that if inflation rises again in the second half, including from another surge in energy prices, the Fed could be forced into multiple rate hikes to re-establish credibility.