Nomura expects a further 25bp Fed hike in December as growth remains resilient and inflation pressures persist.

Overview

This weekly US macro update argues that the September FOMC decision and accompanying projections delivered a distinctly hawkish signal. Nomura sees persistent inflation pressure alongside strong consumption and investment, leading it to maintain its forecast for a 25bp December rate hike followed by a prolonged hold in 2027.

Core views

The FOMC unanimously raised rates by 25bp at its September meeting, the first hike since July 2023. Nomura characterizes the overall communication as hawkish: the statement said the action would support a timelier return to the 2% inflation goal, and Chair Warsh said broad financial conditions were difficult to describe as restrictive. He framed the move as removing “a dose of accommodation,” a view the report says was widely shared by the Committee. Nomura therefore continues to expect another 25bp hike in December, followed by a prolonged hold through 2027; it judges the risks around that policy call to be tilted toward additional tightening. The revised dot plot supports this view. The median 2026 policy-rate projection increased to 4.125% from 3.75% in June, implying another 25bp hike by year-end. Twelve participants projected one more hike, four projected two additional hikes, and two expected rates to remain unchanged through 2026. The 2027 median also rose, to 4.125% from 3.625%, implying a hold next year, although eight participants projected 4.375%, leaving scope for more tightening. Longer-run rate projections also shifted upward, which Nomura interprets as a higher assessment of the neutral rate. Its policy assumptions place the 2026 year-end rate at 4.125%, the 2027 year-end rate at 4.125%, and the terminal rate in a 4.00%-4.25% range. The economic projections and inflation discussion reinforce the hawkish interpretation. FOMC GDP forecasts for 2026 and 2027 were raised slightly, while unemployment forecasts for 2026-28 were lowered to 4.1%; Warsh described that level as broadly consistent with full employment. At the same time, the median 2026 headline PCE projection rose to 3.7% from 3.6%, and core PCE was revised higher despite expected downward effects from forthcoming methodological changes. Fifteen participants viewed core-PCE risks as weighted to the upside, versus three seeing them as broadly balanced. Nomura emphasizes that policymakers are increasingly more concerned about upside inflation risks than labor-market risks. Recent price data, in Nomura's view, show little relief. Consumer-goods import prices excluding autos rose 0.5% month on month in August, led by apparel, glassware and ceramics, while computer accessories, peripherals and parts also rose strongly. Manufacturing surveys showed sharply higher input costs and longer supplier delivery times amid renewed Middle East tensions. The New York Fed services survey showed prices received at their highest since February 2023, which the report treats as evidence of continued cost pass-through into consumer services. Nomura expects inflation to peak later in 2026 and forecasts Q4 2026 core PCE inflation at 3.4% year on year. It cites higher energy prices, supply-chain disruption and technology-component price pressure tied to the global AI upcycle as key forces, only partly offset by methodological changes. Growth remains robust despite those price pressures. August nominal retail sales rose 1.2% month on month, above Nomura's 0.5% forecast and the 0.8% consensus expectation. Nomura estimates real retail sales increased 0.7% month on month, lifting its three-month average growth rate to the highest since November 2024. Control sales rose 1.4%, partly reflecting a rebound in online sales, although the report notes distortions from Prime Day timing and seasonal adjustment. Nomura sees consumption as supported by a stable labor market, higher tax refunds and strong income growth, even as higher gasoline prices absorb part of the refund boost. Housing is the weak area, constrained by elevated mortgage rates. Business investment is also expected to remain resilient and increasingly broad-based beyond AI-related components. Nomura forecasts core durable-goods orders to rise 0.7% month on month in August after a 0.5% gain in July, citing stronger survey new-order indices and a modest pickup in aggregate sector employment. It raised Q3 GDP tracking to 4.0% quarter on quarter annualized from 3.3%, while its estimate of real final sales to private domestic purchasers increased to 3.3% from 2.7%. The report expects capex-led growth to continue, though it flags the risk that an AI-boom bust could produce an asset-price correction and weaker investment. For the week ahead, Nomura expects preliminary manufacturing and services PMIs to edge down, but price indices and delivery times to remain elevated. It expects August new-home sales to slow to a 595,000 annualized pace from 607,000 in July, durable-goods orders to rise 0.2% month on month after a 1.1% July increase, and University of Michigan consumer sentiment to decline to 47.5 in September. The report also highlights risks that weak forward guidance and renewed political pressure on FOMC participants could damage inflation-fighting credibility and trigger a sharp market reaction; further geopolitical escalation could tighten financial conditions and worsen the fiscal outlook.

Analysis framework

Nomura first interprets the September FOMC decision, dot plot, economic projections and Chair Warsh's remarks to form its policy outlook. It then tests that view against inflation indicators, consumer spending, investment and housing data, updates GDP tracking, and sets out forecasts for forthcoming releases. Its weekly activity tracker uses the first principal component of 13 daily and weekly US industrial and consumer indicators, calibrated to four-quarter real GDP growth.

Methodology notes

• Event-Driven and Behavioral FinanceEvent-driven analysis

  September FOMC decision, projections and press-conference analysis

  The report treats the policy meeting as a market-relevant event and assesses how the rate hike, dot plot, forecasts and Chair Warsh's language alter the expected policy path.

• Quantitative, Factor, and Portfolio Theory

  Principal component analysis of a 13-indicator weekly US activity tracker

  Nomura extracts the latent factor contributing the most to variation across daily and weekly industrial and consumer indicators, then calibrates it to track four-quarter real GDP growth.

Key data

• September FOMC rate move25bp hike, unanimousFirst hike since July 2023.
• 2026 median policy-rate projection4.125%Up from 3.75% in June; implies another 25bp hike by year-end.
• 2027 median policy-rate projection4.125%Up from 3.625% in June; implies rates on hold next year.
• 2026 headline PCE projection3.7%Up from 3.6% in June.
• Q4 2026 core PCE forecast3.4% y-o-yNomura expects inflation to peak later in 2026.
• August retail sales1.2% m-o-mAbove Nomura's 0.5% forecast and 0.8% consensus.
• August real retail sales estimate0.7% m-o-mLifted the three-month average to its highest since November 2024.
• Q3 GDP tracking estimate4.0% q-o-q annualizedRaised from 3.3% the prior week.
• Real final sales to private domestic purchasers3.3%Raised from 2.7%.

Impact & implications

Nomura's central implication is that resilient demand and investment, together with broad and persistent price pressure, leave the Fed focused on inflation rather than labor-market weakness. The report therefore expects policy to tighten once more in December and remain restrictive through 2027, while higher mortgage rates continue to weigh on housing.

Risks

• Weak forward guidance and renewed political pressure on FOMC participants could undermine the Fed's inflation-fighting credibility and trigger a sharp market reaction.
• Further geopolitical escalation could tighten financial conditions and worsen the fiscal outlook.
• A bust in the AI boom could cause a material asset-price correction and weaker business investment.
• Protracted Iran-war supply disruption and AI-driven memory-chip shortages could create a second round of goods inflation.

What to watch

• Preliminary S&P manufacturing and services PMIs, especially price indices and supplier delivery times.
• Jobless claims and continuing claims data ahead of the September nonfarm-payroll reference week.
• August new-home sales, given elevated mortgage-rate headwinds.
• August durable-goods orders and core orders as indicators of business-investment resilience.
• Final September University of Michigan consumer sentiment and inflation expectations.
• Energy prices, Middle East tensions, supply-chain disruption and Fed communication before the December meeting.