Doha: QNB stated on Saturday that it anticipates the US Federal Reserve to persist with a gradual easing of its monetary policy, forecasting two more interest rate reductions this year, which would lower the rate to 3.25%.
According to Qatar News Agency, QNB's weekly report suggests that the effects of geopolitical tensions and fluctuating commodity prices will be limited, despite adding complexity to the macroeconomic landscape for 2026. It emphasized that these tensions are not expected to disrupt the overall trend of decreasing inflation in the US economy, noting that supply-side influences on inflation are projected to remain minimal, while labor market conditions are anticipated to soften gradually.
The report supports QNB's prediction that the Federal Reserve will continue its gradual policy easing with two additional rate cuts this year to achieve a 3.25% rate. QNB also expressed a positive outlook for the US macroeconomic environment at the start of 2026, citing strong capital expenditure driven by artificial intelligence, improved productivity dynamics, and the gradual normalization of housing inflation as factors creating a favorable economic environment. This scenario is expected to result in strong economic growth alongside declining inflation.
It further explained that these factors would be bolstered 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 acknowledged challenges at the beginning of the year, with a series of negative developments raising questions about macroeconomic expectations. These challenges include renewed trade policy tensions, increased volatility in US foreign policy, and significant disruptions in global commodity markets following geopolitical shocks.
The report also highlighted that these elements, together with supply constraints, have led to a sharp rise in hydrocarbon prices. Consequently, financial markets have started adopting more cautious macroeconomic assumptions regarding the US economy. Investors are 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 necessitating rate hikes.
Despite this, the report argued that these concerns were overstated. While recent developments have complicated the macroeconomic landscape, they are unlikely to fundamentally alter the Federal Reserve's policy path in the medium term. The report reiterated its expectation for two additional rate cuts in 2026, extending the easing cycle that began in September 2024, with rates projected to decline to around 3.25% by year-end.
QNB identified three key factors supporting this view. First, the effect of supply-side shocks and inflationary pressures from geopolitical developments is seen as temporary and largely independent of interest rate changes. The report stated that monetary policy primarily affects financial conditions and aggregate demand, making it ineffective in addressing 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. Simultaneously, rapid adoption of artificial intelligence is encouraging firms to improve efficiency and reduce labor costs, reinforcing the trend of a cooling labor market.