Nomura has dropped its prediction that the Federal Reserve will cut interest rates in 2026, a shift driven by inflation that refuses to cool. The Japanese bank had previously penciled in a rate reduction for that year, but now says the timeline no longer holds.
Why the forecast changed
Inflation has stayed hotter than the Fed wants. Consumer prices continue to rise at a pace above the central bank’s 2% target, and the job market remains tight. Nomura’s economists concluded that the conditions needed for a rate cut — a clear, sustained drop in inflation — won’t materialize in time for a 2026 move. The bank didn’t specify a new forecast for when a cut might come.
The decision isn’t isolated. Other financial institutions have also pushed back their expectations for Fed easing. But Nomura’s move stands out because it had been relatively optimistic about a 2026 cut compared to some peers who saw rates staying higher for longer.
The inflation picture
Core inflation, which strips out volatile food and energy prices, has hovered around 3% for months. The Fed’s preferred measure, the personal consumption expenditures index, has shown similarly sticky readings. Fed Chair Jerome Powell has repeatedly said the central bank needs “greater confidence” that inflation is moving sustainably down before it starts lowering rates.
That confidence hasn’t arrived. Data from the past several quarters show price pressures persisting across services and some goods. The labor market adds to the challenge: employers keep hiring, wages keep climbing, and that feeds into consumer spending — and into prices.
Nomura’s about-face signals that even a long-range forecast for a 2026 cut now looks too aggressive. The bank’s economists likely see inflation settling above target for years, not months.
What this means for rate expectations
Markets have already repriced the path of Fed policy. Futures traders now assign a lower probability to any cut before 2027. The so-called terminal rate — the level where the Fed stops — has crept higher in market pricing.
For borrowers, the implications are straightforward. Mortgage rates, credit card rates, and business loan costs will stay elevated. Companies that hoped for relief by mid-decade will have to adjust plans. The housing market, already strained by high rates, isn’t likely to get a break soon.
The Fed itself has offered no hints of near-term easing. At its last meeting, the rate-setting committee kept the benchmark rate at 5.25%-5.5%, a level it has held since July 2023. Minutes from that meeting showed officials remain wary of moving too quickly.
Nomura’s revised view lines up with that caution. The bank now joins a growing chorus of forecasters who see the Fed holding steady well past 2026. The question investors are asking: If Nomura was wrong about 2026, how far out does the first cut really lie?
