Rabobank Revises Rate Cut Outlook
Rabobank said the change follows the war with Iran and the rise in energy prices. It reported that a further escalation in the conflict could remove one more cut from its 2026 forecast. Before the war with Iran, Rabobank expected three rate cuts in 2026 in June, September and October. It also stated that market consensus implies fewer cuts than its own forecast. Rabobank referenced the possibility of a future change in Federal Reserve leadership to Warsh. It said this could affect future policy decisions. The article notes it was produced with assistance from an artificial intelligence tool and reviewed by an editor.Market Pricing And Trading Implications
The Federal Reserve is holding rates steady for now, officially projecting just one cut in 2026, but we see things differently. We are forecasting two rate cuts, one in September and another in December, because we believe the Fed will look through the temporary inflation caused by the conflict with Iran. Recent data shows core inflation remaining stubborn around 3.2%, which explains why many in the market are hesitant to price in more aggressive easing. The situation with Iran is the primary source of uncertainty and will drive volatility in the coming weeks. We just saw Brent crude prices spike over $95 a barrel on reports of new tensions, a level not seen since the initial flare-ups in 2025. This kind of environment means traders should prepare for sudden moves, making options strategies that benefit from rising interest rate volatility particularly relevant. There appears to be a disconnect between our view and what the market is currently pricing. As of today, interest rate futures are implying only about a 60% chance of a single rate cut by the end of the year. For traders who agree with our two-cut forecast, this suggests positions that benefit from falling rates later in the year could be undervalued. An additional factor to watch is the potential for a new Fed Chair, who may push the Committee to be more aggressive with cuts than is currently expected. Looking back at past leadership changes at the Fed, such as the transition to Powell in 2018, we saw periods of significant market repricing. This uncertainty further supports holding positions that can profit from a wider range of outcomes, as the risk of another cut being removed from our forecast remains if the war escalates. Create your live VT Markets account and start trading now.
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