According to economists at Natixis, the U.S. Federal Reserve is likely to keep interest rates unchanged at its July meeting and maintain its current policy stance for the remainder of 2026.

The main reason is that recent economic data suggests inflationary pressures are easing, while the labor market, although slowing, has not weakened significantly.

Employment and Inflation Data Support a Wait-and-See Approach

The June employment report showed that the U.S. economy added only 57,000 jobs, well below the three-month average of 164,000 jobs.

Inflation data was even more encouraging:

• Headline CPI fell 0.4% month-on-month in June

• Core CPI was unchanged

• Components used to calculate the PCE price index suggest inflation could fall below the Fed’s 2% target

These figures give the Fed more reason to keep rates unchanged rather than tighten monetary policy immediately.

Iran and Tariffs Remain Major Risks

Although keeping rates unchanged remains the base-case scenario, the outlook could change if energy prices rise sharply or a new round of tariffs is introduced.

Tensions with Iran could push oil prices higher, while tariffs may increase the cost of goods. If these factors cause inflation to accelerate again, the Fed could be forced to raise interest rates to preserve its inflation-fighting credibility.

Conclusion

The Fed is likely to remain on hold for the rest of 2026. However, the direction of monetary policy will continue to depend heavily on inflation, oil prices and potential new tariffs.

If price pressures continue to ease and consumer spending slows, the possibility of monetary policy easing may become clearer next year.

Source: Kitco