Federal Reserve: Mixed signals keep rates on hold – DBS

DBS Group Research economists Taimur Baig and Chang Wei Liang argue that sticky United States (US) inflation keeps pressure on the Federal Reserve (Fed), but soft consumption, weak investment and fading labour market resilience justify a pause in Fed Funds rate hikes. They highlight mixed macro data, rising hike odds and heavy public debt issuance, yet still expect the Federal Open Market Committee (FOMC) to hold rates near term.

Sticky inflation versus weakening demand

"But sticky core inflation, fuelled by electronics, immigration, tariff, and services prices, has become concerning, compounded by the Iran war-induced headline fuel inflation."

"For a central bank ostensibly targeting 2% inflation, 3%+ core inflation since December-2025 is problematic to say the least."

"The macro dataflow at the current juncture is however mixed, offering some ammunition to those in favour of a wait-and-see approach."

"Our view is that once wage growth (around zero in real terms), retail sales (on the soft side), and the public debt situation (enormous forthcoming issuances tilted toward short duration) are considered, the case for pause, for the time being, remains."

"The Fed faces a tough call: sticky inflation argues for hikes, but soft demand, weak investment, muted wage growth, and heavy debt issuance support holding rates steady for now."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)