Natixis economists Christopher Hodge and Selin Aker forecast the Federal Reserve will keep interest rates unchanged at its July meeting and through 2026, citing dovish trends in recent economic data. The economists noted June payrolls registered a gain of 57k, below the 164k average in the preceding three months, while June headline CPI fell 0.4% and core CPI remained flat. Fed Chair Warsh stated during Congressional testimony last week the central bank would not tolerate "persistently elevated inflation" while characterizing AI buildout as likely a one-time price pressure. The forecast comes as Fed officials have expressed mixed views since the June meeting, with Waller, Logan, Hammack and Kashkari voicing inflation concerns while Williams characterized policy as "well-positioned."
June Employment Report Shows 57k Payroll Gain
The Employment Situation Report since the June meeting showed payrolls registered a gain of 57k in June, following gains that averaged 164k in the preceding three months, according to Hodge and Aker's FOMC preview. The economists identified a significant shift in labor force composition, noting the labor force participation rate decline in June was driven by prime-age workers between 25-54 rather than older Americans. "In June's employment report, the fall was driven by prime-age workers (between 25-54), which is a more troubling development if that continues because it would convey a sense of frustration in the job-finding efforts of the biggest labor group in the country," the authors wrote.
June Inflation Data Records Negative 0.4% Headline CPI
June headline CPI came in at -0.4% on the month, which Natixis attributed to energy falling precipitously following the ceasefire agreement between the US and Iran. Core CPI was flat on the month, according to the report. "The components from CPI and PPI that flow to the Fed's preferred measure of inflation (the PCE deflator) suggest a reading for June that would be below the Fed's 2% target," Hodge and Aker wrote.
Fed Officials Express Mixed Views on Policy Stance
Fed communication since the June meeting has been mixed but hawkish on balance, with Waller, Logan, Hammack and Kashkari expressing concern about inflation. Williams was the only notable dove, saying he "believes that the current stance of policy is 'well-positioned' and that there are 'encouraging reasons to expect inflation has peaked and should come down in the coming quarters,'" according to the Natixis preview. Dallas Fed President Lorie Logan has advocated for a rate hike, and Natixis suspects she will dissent from a Committee vote for a hold, possibly accompanied by Cleveland Fed President Beth Hammack and Minneapolis Fed President Neel Kashkari. Governors Waller and Cook appear willing to hold given the June inflation data, the economists wrote.
Natixis Forecasts Extended Policy Pause Through 2026
Natixis expects the Fed to keep its policy rate unchanged at its July meeting and through 2026. "We are cautiously optimistic about the trajectory of inflation as the primary drivers of recent years (namely hot wage growth and housing inflation) look set to cool off in the coming quarters," Hodge and Aker stated. The economists identified tariffs and energy prices from the failed MOU with Iran as significant risks to their outlook. "On the flip side, if we are correct about reduced domestically generated price pressures, the Fed could avoid hikes in the near term," they wrote. The statement is expected to be little changed from the version introduced at the June meeting.
FAQ
What did Natixis economists forecast about Fed rates at the July meeting?
Natixis economists Christopher Hodge and Selin Aker forecast the Federal Reserve will keep interest rates unchanged at its July meeting and through 2026, based on dovish trends in employment and inflation data.
What were the June payroll and inflation figures cited by Natixis?
June payrolls registered a gain of 57k, below the 164k average in the preceding three months. June headline CPI fell 0.4% and core CPI remained flat on the month.
Which Fed officials does Natixis expect to dissent from a rate hold decision?
Natixis suspects Dallas Fed President Lorie Logan will dissent from a hold vote, possibly accompanied by Cleveland Fed President Beth Hammack and Minneapolis Fed President Neel Kashkari.
