Doha, Qatar: QNB said Saturday that it expects the US Federal Reserve to continue gradually easing its monetary policy and to implement two additional interest rate cuts this year, bringing the rate down to 3.25%.
In its weekly note, QNB said that the impact of geopolitical tensions and commodity price volatility will be limited, despite adding complexity to the macroeconomic outlook for 2026. It also noted that these tensions were unlikely to disrupt the broader trend of declining inflation in the US economy, highlighting that supply-side effects on inflation will remain limited, while labor market conditions were likely to soften gradually.
The report said that these combined factors support the bank’s expectation that the Federal Reserve will continue gradually easing policy, with two additional rate cuts this year to reach 3.25%.
QNB also highlighted its positive outlook for the US macroeconomic environment at the start of 2026. It noted that strong capital expenditure driven by artificial intelligence, improved productivity dynamics, and the gradual normalization of housing inflation are expected to create a favorable economic environment. In such a scenario, economic growth would remain strong while inflation continues to decline.
It added that these factors would be supported by the continuation of the Federal Reserve’s easing cycle, which began in September 2024, leading to a gradual shift toward more accommodative monetary policy.
However, the report noted that this optimistic outlook has faced challenges at the beginning of the year, as a series of negative developments have raised questions about macroeconomic expectations. These include renewed trade policy tensions, increased volatility in US foreign policy, and significant disruptions in global commodity markets following geopolitical shocks.
The report added that these factors, along with supply constraints, have led to a sharp increase in hydrocarbon prices. As a result, financial markets have begun adopting more cautious macroeconomic assumptions regarding the US economy. Investors have increasingly focused on the risk that new negative shocks could lead to a stagflationary environment, potentially preventing the Federal Reserve from cutting rates further or even forcing it to raise them.
Despite this, the report said these concerns were overstated. While recent developments have complicated the macroeconomic landscape, they were unlikely to fundamentally alter the Federal Reserve’s policy path in the medium term.
The report reiterated that it expects two additional rate cuts in 2026, extending the easing cycle that began in September 2024, with rates declining to around 3.25% by year-end.
QNB identified three key factors supporting this view. First, the impact of supply-side shocks and inflationary pressures stemming from geopolitical developments is temporary and largely independent of interest rate changes.
It said that monetary policy primarily affects financial conditions and aggregate demand, making it ill-suited to address supply-side disruptions such as energy shortages, trade restrictions, or logistical bottlenecks. Historical experience shows that central banks typically overlook such events when they are expected to be temporary.
The report stressed that attempting to curb supply-driven inflation through tighter monetary policy would likely worsen the negative impact on economic activity without significantly easing price pressures.
The second factor was the limited overall impact of rising hydrocarbon prices on inflation and the US Consumer Price Index, as energy and transportation together account for only about 12.8% of the US consumption basket.
It noted that housing costs represent the largest component of the CPI, and continued moderation in housing inflation is likely to offset part of the upward pressure from higher energy prices. As a result, overall inflation is expected to remain on a path consistent with a gradual return to the Federal Reserve’s target.
The third factor was the weakening labor market conditions. Job openings have declined significantly from their post-pandemic peak, layoffs have accelerated across several sectors, and private-sector employment indicators point to further slowing. At the same time, rapid adoption of artificial intelligence is encouraging firms to improve efficiency and reduce labor costs, reinforcing the trend of a cooling labor market.
