US Dollar: Inflation outlook and Fed path – UOB
UOB’s Alvin Liew assesses United States (US) inflation and Federal Reserve (Fed) policy after the July Consumer Price Index (CPI) report. Liew notes headline and core CPI remain above the Fed’s 2% target but sees inflation gradually easing, with headline CPI averaging 3.5% and core 2.8% in 2026.
UOB’s Alvin Liew evaluates the US inflation situation and Federal Reserve (Fed) strategy following the July Consumer Price Index (CPI) report. Despite headline and core CPI staying above the Fed’s 2% target, Liew believes inflation will gradually decrease, averaging 3.5% and 2.8% in 2026. He anticipates the Fed to maintain rates through 2026 before initiating slow cuts in 2027.
Inflation forecasts have improved, but there are still potential upside risks, mainly due to energy prices and geopolitical factors. While the July CPI report lessened immediate concerns about persistently high US inflation, it is premature to celebrate inflation control. The resumption of disinflation is likely to be uneven and vulnerable to external shocks.
The near-term inflation outlook remains balanced, with Liew predicting headline CPI to average 3.5% and core CPI around 2.8% in 2026. The primary risk to the CPI outlook hinges on geopolitical events in the Middle East. If tensions ease and energy prices remain stable or drop, headline inflation may further decrease throughout 2026.
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