Nomura expects the April FOMC to stay on hold, with rate cuts pushed back to September and December

Overview

This issue of US Economic Weekly focuses on the U.S. macro outlook, the impact of the Iran war, and the Federal Reserve's policy path. Nomura believes that the blockade of the Strait of Hormuz is keeping energy prices elevated, creating headwinds for price pressures and consumer confidence; at the same time, U.S. consumption, the labor market, and business surveys still show economic resilience, while inflation pressure is also building. Based on this, Nomura expects the April FOMC to leave rates unchanged and continue with a wait-and-see stance.

Core views

The core judgments include: first, the April FOMC is highly likely to stay on hold, with the easing bias in the statement possibly retained, though pressure is rising from hawks for more two-sided language; second, Warsh's confirmation hearing paves the way for future easing, but did not express any urgent desire for near-term rate cuts; third, U.S. growth data came in stronger than expected, and the Q1 GDP forecast was raised to 2.0% q-o-q ar; fourth, core PCE, service prices, wages, and goods costs all indicate that inflation remains sticky; fifth, Nomura has postponed its rate-cut forecast to September and December 2026, 25bp each.

Analysis framework

The report combines FOMC communication, the policy rate path, retail sales, PMI, ADP employment, PCE, ECI, GDP, consumer confidence, trade, and durable goods orders, among other high-frequency and macroeconomic data, to assess growth, inflation, and the policy reaction function. Analysis of the Iran war mainly feeds through energy prices, shipping disruptions, supply chain disturbances, and consumer sentiment into the U.S. inflation and growth outlook.

Methodology notes

• Monetary policy analysisFOMC reaction function

  Coexistence of wait-and-see and easing bias

  The report believes the Fed will keep the policy rate unchanged while maintaining a medium-term easing bias; however, stronger recent inflation and employment data are putting pressure on statement wording to shift toward more two-sided risk language.

• Inflation analysisComparison of core PCE with alternative inflation indicators

  Trimmed-Mean PCE may underestimate inflation pressure

  Warsh mentioned that trimmed-mean indicators could be monitored, but the report points out that Trimmed-Mean PCE is a negative outlier relative to other inflation indicators and may not reliably reflect the inflation trend.

• Macro forecastingData preview and scenario forecasting

  Use retail, PMI, employment, and price data to update GDP and inflation paths

  Based on stronger-than-expected retail sales, business surveys, and changes in commodity prices, Nomura raised its Q1 GDP forecast and expects core PCE and wage pressures to remain elevated.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• U.S. policy rates and OIS forward rates

  Directly related

  Strengths

  There is still a medium-term easing path, with Nomura expecting 25bp cuts in September and December 2026.

  Weaknesses

  Near-term growth and inflation data are hawkish, so the April meeting is not expected to cut rates.

  Comparison

  Nomura's path, along with the FOMC median and OIS forward rates, all point to lower future rates, though the timing of cuts is affected by political and inflation factors.

  Risks

  If inflation continues to rise or hawkishness within the FOMC intensifies, rate cuts could be delayed further.

• Energy commodities and oil & gas-related assets

  Affected by the Iran war and the blockade of the Strait of Hormuz

  Strengths

  Supply disruptions and shipping risks are keeping energy prices elevated.

  Weaknesses

  If the strait reopens quickly or the conflict eases, the oil price shock may recede.

  Comparison

  The report believes the U.S. is relatively better able to withstand oil price shocks because of domestic energy production and the smaller share of energy in consumption.

  Risks

  Repairs to energy infrastructure, demining, and the continuation of the blockade may prolong price pressures.

• U.S. consumption and retail-related assets

  Affected jointly by energy prices, tax refunds, and income support

  Strengths

  March retail sales were stronger than expected, and tax refunds offset pressure from higher gasoline prices.

  Weaknesses

  Consumer confidence remains weak, and consumption momentum excluding gasoline is relatively moderate.

  Comparison

  Consumption fundamentals remain healthy, but sentiment indicators and some high-frequency consumption data are weak.

  Risks

  Persistently high gasoline prices may weigh on real disposable income and willingness to spend.

• U.S. equities and risk assets

  Affected jointly by the rate path, AI investment, and inflation risks

  Strengths

  Economic resilience and broadening business investment support risk assets.

  Weaknesses

  Persistently high rates and sticky inflation may weigh on valuations.

  Comparison

  The report notes that business investment beyond AI is expanding, but also warns of a possible collapse in the AI boom.

  Risks

  A collapse in the AI boom, supply chain shortages, geopolitical escalation, or damage to Fed credibility could all trigger valuation corrections.

Key data

• April FOMC rate decisionUnchanged; target range lower bound 3.50%, upper bound 3.75%The report expects the April meeting to continue waiting and maintain an easing bias.
• 2026 rate-cut forecast25bp cuts in September and DecemberThis is later than previously expected, mainly due to price pressures from the Iran war and delays in Warsh's confirmation.
• Terminal policy rate3.00%-3.25%Shown in charts and policy assumptions.
• Q1 real GDP forecast2.0% q-o-q arAccelerating from 0.5% in Q4, supported by strong retail sales and fixed investment.
• March core PCE forecast0.259% m-o-m, 3.153% y-o-yThe report believes core inflation remains above the Fed's 2% target.
• April consumer confidence forecast91.1Below 91.8 in March, affected by energy prices and pessimistic sentiment.
• April ISM manufacturing forecast53.2Above 52.7 in March, reflecting improvement in demand and production indicators.
• Q4 2026 core PCE forecast3.1% y-o-yThe report believes inflation risks are skewed to the upside.

Impact & implications

For markets, the report conveys a combined signal of 'no rush to cut rates in the near term, but easing still possible later.' Strong growth and high inflation weaken the case for near-term rate cuts and may support short-end rates staying elevated; however, if Warsh takes office and inflation concerns ease, rate cuts could still begin in the second half of 2026. Energy prices and the Middle East situation are key variables affecting inflation expectations, consumer sentiment, and FOMC communication.

Risks

• Further escalation of the Iran war, leading to tighter financial conditions and a worsening fiscal outlook.
• Rising political pressure on FOMC members in the U.S. may undermine Federal Reserve credibility and trigger sharp market reactions.
• A collapse in the AI boom could lead to a significant correction in asset valuations.
• Memory chip shortages, elevated energy prices, and supply chain disruptions could trigger a second round of goods price increases.
• If inflation expectations spread from the UMich measure to the NY Fed's long-term inflation expectations, Federal Reserve policy communication will become more constrained.

What to watch

• Whether the April FOMC statement retains an easing bias, and how Powell responds to disagreements over further rate cuts.
• Warsh's confirmation process, and whether the Powell investigation is restarted or taken over by another institution.
• Traffic through the Strait of Hormuz, the U.S. Navy blockade, and the recovery of energy infrastructure.
• The NY Fed long-term inflation expectations release on May 7.
• Upcoming data releases including March core PCE, Q1 GDP, ECI, ISM manufacturing, and consumer confidence.
• Whether service-sector price surveys, commodity prices, and wage growth continue to indicate stickiness.