Key Takeaways:
The Fed will hold rates through 2026 despite Warsh's hawkish tone, while U.S. sanctions fuel sovereign gold demand, Natixis says.
The Federal Reserve will keep its benchmark rate at 3.5% to 3.75% through the balance of 2026, according to Natixis, which said Chair Kevin Warsh may have started his tenure too hawkish for the inflation data to support.
"Inflation will be the Fed's principal preoccupation for the balance of 2026, but that doesn't mean monetary policy will move an inch," Christopher Hodge, head economist for the U.S. at Natixis, said. "U.S. sanctions and trade policies continue to stoke sovereign demand for gold."
The call comes after June CPI fell 0.4% month over month, the first monthly decline in six years, while core prices were flat. Headline inflation stood at 3.5% year over year, below the 3.8% consensus estimate. Despite the benign reading, Warsh told the House Financial Services Committee on Tuesday he had "zero tolerance" for the five-year stretch of elevated inflation and rejected the view that the data meant "mission accomplished."
The divergence between Warsh's rhetoric and the inflation trajectory creates uncertainty around the Fed's reaction function. CME FedWatch data shows a 50% probability of a quarter-point hike by September, while Natixis sees no move at all — a gap that leaves bond and equity markets exposed to whipsaws from every data release.
Warsh's Hawkish Debut Under Scrutiny
Since taking office in May, Warsh has emphasized a "regime change" at the central bank, establishing five new task forces to review communications, the $6.7 trillion balance sheet, and the inflation framework. He declined to submit a rate forecast for the June FOMC meeting, breaking with his predecessor's practice of forward guidance. "We want to get policy right, and I think being somewhat more circumspect in our communications, at least for me, is a better way of calling balls and strikes," Warsh said.
The last time a Fed chair adopted similarly combative language toward inflation was Paul Volcker in the early 1980s, when the fed funds rate peaked above 19%. The current 3.5% to 3.75% range, held since March after a series of cuts through 2024 and 2025, reflects a fundamentally different inflation environment — one where the six-month annualized core CPI run rate has fallen below 3%.
Sanctions Policy Stoking Sovereign Gold Demand
Beyond the rate path, Hodge pointed to U.S. sanctions and trade policies as an underappreciated driver of sovereign gold purchases. The U.S. reinstated a naval blockade on vessels transiting Iranian ports, while Iran's Islamic Revolutionary Guard Corps threatened that the region would not export "a drop of oil" as long as U.S. attacks continue. The Strait of Hormuz remains open to all vessels except Iranian ones, the U.S. Central Command said.
These measures are pushing central banks — particularly those in emerging markets — to diversify reserves away from dollar-denominated assets and into gold, Hodge said. Sovereign gold purchases have been a key floor under prices, with the metal trading near record levels even as real yields have risen.
The next FOMC meeting is scheduled for July 28-29. OIS markets currently price an 84.5% probability of a hold, according to CME FedWatch.
This article is for informational purposes only and does not constitute investment advice.
