Dovish outlier Nomura boosted Fed-hike forecasts for two reasons
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Elevated oil prices and sticky inflation have prompted Nomura to increase the number of Federal Reserve interest-rate hikes it forecasts, though still fewer than what the market is pricing. The Japanese investment bank expects the Fed to hike rates this week and in December, followed by an extended hold through 2027. "Little inflation progress and a sharp rise in energy prices led us to revise our call," according to a report led by Nomura economist Aichi Amemiya. Nomura also added forecasts for two more hikes for the European Central Bank in December and March, adding that inflation could print above target until early 2027, citing the Iran conflict. "Headwinds from the Iran war remain for H2 2026. We see growth improving into 2027," it added. While the market is pricing more than four hikes for the Bank of Japan, Bank of England and People's Bank of China, Nomura is expecting three more by the BOJ and no more hikes by the BOE or PBOC. Nomura's out-of-consensus dovish outlook is due to: There is a resumption of hiking cycles, with most policy rates are being near or above or neutral. Much of the cost-push inflation, over time, is negative for growth. Rising bond yields are tightening financial conditions, which signal that space for further fiscal stimulus is limited. Since Fed Chairman Kevin Warsh 's hawkish speech last month in Jackson Hole, higher oil prices and inflation have raised concerns among investors that inflation won't take care of itself without intervention by the Fed. According to the CNBC Fed Survey , a majority of respondents now forecast at least two rate hikes over the next one year, with a third predicting three or more. Last month, less than half expected any hike at all.