Deutsche Bank expects the US Federal Reserve to keep interest rates unchanged throughout 2026, citing inflation risks driven by oil prices amid the ongoing war in the Middle East, as well as robust economic growth and a tight labor market that leaves little room for interest rate cuts.
The bank had previously included a forecast of an interest rate cut in September.
Deutsche Bank strategists explained in a note released on Thursday that any interest rate cut this year would require some relaxation in labor market conditions, along with a significant decline in inflation rates.
While global banks such as JPMorgan and HSBC have ruled out any interest rate cuts by the Federal Reserve this year, other banks, including Goldman Sachs, Morgan Stanley and Bank of America, still expect the US central bank to cut interest rates twice, starting in September.
A number of Federal Reserve officials had warned days earlier that the war in the Middle East had exacerbated inflationary pressures, while increasing uncertainty was limiting the US central bank's ability to clearly define its next steps on interest rates.
The Federal Reserve kept its target range for interest rates steady at its mid-March meeting, at a level between 3.5 percent and 3.75 percent, with expectations pointing to the possibility of a further interest rate cut later this year.
Its next meeting is scheduled to take place from April 28 to 29.
Estimates in the markets show a probability of approximately 69 percent that the Federal Reserve will not cut interest rates by the end of 2026, according to data from the London Stock Exchange Group.
Deutsche Bank said: A rate hike this year is no longer a remote possibility, but we do not expect such conditions to materialize in 2026.
