Fed to Hold Rates Through 2026 as Inflation Monitor Continues; Warsh's Early Hawkishness Creates Policy Credibility Risk, Natixis Economist Warns

According to Christopher Hodge, Head Economist at Natixis, the Federal Reserve will hold interest rates steady throughout 2026 as it monitors how external price shocks from tariffs and energy costs bleed into core inflation. Hodge, who previously served as Principal Economist at the New York Fed, noted that underlying domestic inflation pressures appear subdued, with housing (35% of CPI) expected to soften and wage growth at 3% to 3.5% consistent with a 2% inflation target. However, Hodge warned that Fed Chair Kevin Warsh may have taken an overly hawkish stance at the outset, creating a "credibility trap" if inflation prints accelerate in coming months and force the Fed to hike despite weak recent data.

Separately, Hodge said U.S. sanctions and erratic trade policies are accelerating central bank diversification away from the dollar into gold as an alternative reserve asset. While Russia's 2022 invasion of Ukraine prompted the initial shift, he said the subsequent unpredictability of U.S. foreign policy has sustained and broadened sovereign gold purchases, even as demand for official dollar assets remains the largest globally.