Nomura's recent Policy Watch argues that the Federal Reserve will probably postpone the much-anticipated move to monetary easing. Analysts at the firm have revised their timeline, shifting the expected date for the first rate cut from June to September 2026 and forecasting only two reductions this year, the second of which they see occurring in December.
The bank points to two main dynamics behind the more hawkish near-term view: an uptick in inflationary pressure linked to the conflict in Iran and a change in the Fed's political calculus after the delayed confirmation of Chair nominee Kevin Warsh.
Geopolitical shock to price stability
According to Nomura, the ongoing conflict in Iran has introduced fresh upside risks to prices. The report notes that volatile energy costs and regionally disrupted supply chains have elevated concerns about short-run price stability for members of the Federal Open Market Committee (FOMC). Those supply-side movements, the bank suggests, give the Fed a tangible reason to keep policy restrictive through the near term rather than moving quickly to cut rates.
Leadership transition and the Warsh delay
Nomura highlights the delayed confirmation of Kevin Warsh as a factor that has eased immediate political pressure on the Fed to implement a mid-year rate cut. While the bank expects the incoming leadership to favor easing eventually, the combination of a temporary leadership vacuum and the inflationary impulse from the Middle East is presented as justification for postponing policy loosening until later in the year.
Fed reaction function and labor dynamics
Despite the pushed-back timing, Nomura stresses that the Fed's overall tilt still leans toward easing. The report points to an "asymmetric response" in FOMC decision-making - a higher sensitivity to signs of labor-market deterioration than to transient price spikes. Nomura's analysts view the inflationary pressures tied to the Iran conflict as likely temporary and say that once the leadership transition is complete and the labor market displays further cooling, conditions would be in place for a September rate reduction.
Near-term outlook for markets and investors
Investors, Nomura warns, should anticipate a "higher for longer" rate environment across the second quarter of 2026 as the Fed grapples with war-driven inflation risks alongside internal administrative changes. The bank's revised forecast - first cut in September and a second cut in December - reflects that conditional pathway.
Nomura's assessment underscores the interplay between geopolitical shocks and central-bank leadership dynamics in shaping the timetable for monetary easing. The bank does not alter its view that easing is the ultimate bias, but it views the route to that outcome as delayed by recent developments.