Nomura Reverses Course: No Fed Rate Cuts Expected Through 2026

Nomura Securities has dramatically revised its outlook for U.S. monetary policy, now forecasting that the Federal Reserve will hold interest rates steady through the end of 2026. The Japanese financial giant cited persistent inflationary pressures and a lack of consensus among Fed officials for the policy pivot.

From Rate Cuts to a Holding Pattern

In a report published on May 21, Nomura’s research team detailed the rationale behind its revised forecast. The firm had previously projected two 25-basis-point rate cuts in 2025, one in September and another in December. That expectation has now been abandoned entirely.

“While new Fed Chairman Kevin Walsh may still be motivated to ease policy, recent data and comments from Fed officials raise doubts about his ability to persuade a majority of the Federal Open Market Committee to support a rate cut,” the report stated. The shift reflects a broader reassessment of the inflation outlook, which has proven stickier than many economists anticipated.

Inflation and Internal Divisions

The primary driver of Nomura’s revised forecast is the recent trajectory of inflation. Key metrics, including the Consumer Price Index and the Personal Consumption Expenditures Price Index, have shown that price increases are moderating more slowly than hoped. This has emboldened hawkish members of the FOMC, who argue that premature easing could reignite inflationary pressures.

Nomura’s analysis suggests that the internal dynamics of the Fed have shifted. Even if Chairman Walsh favors rate cuts, the report indicates that he faces an uphill battle in building a coalition. The FOMC’s decision-making process, which relies on consensus-building, appears to be moving toward a more cautious stance.

What This Means for Markets and Borrowers

The implications of a prolonged period of elevated interest rates are significant. For consumers, mortgage rates, auto loans, and credit card interest are likely to remain high, maintaining pressure on household budgets. For businesses, the cost of capital will stay elevated, potentially slowing investment and hiring.

Financial markets, which had priced in some degree of rate relief, may need to adjust. Bond yields could remain elevated, and equity valuations, particularly in growth sectors sensitive to interest rates, may face headwinds. The U.S. dollar could also strengthen as the yield advantage over other currencies persists.

Conclusion

Nomura’s revised forecast is a sobering signal for those expecting imminent relief from high interest rates. The firm’s analysis points to a Fed that is constrained by persistent inflation and internal divisions, making any policy easing unlikely for the foreseeable future. For investors and consumers, the message is clear: the era of high rates is likely to persist well into 2026.

FAQs

Q1: Why did Nomura change its forecast?
Nomura cited rising inflation and weakening support among Fed officials for rate cuts as the primary reasons for its revised outlook. Recent economic data has shown that inflation is not cooling as quickly as expected, making it difficult for Fed Chairman Kevin Walsh to secure a majority vote for easing.

Q2: What does this mean for mortgage rates?
If the Fed holds rates steady, mortgage rates are likely to remain elevated. This will continue to put pressure on the housing market, making home purchases more expensive and potentially cooling demand.

Q3: Could the Fed still cut rates if the economy weakens?
While a sharp economic downturn could force the Fed’s hand, Nomura’s analysis suggests that the current inflation data would need to improve significantly before any cuts are considered. The bar for easing is now higher than previously thought.