Interesting observation on 2026 potential Fed Rate Hike

While the market is focusing on the near term U.S. labor market weakening and numbers of rate cuts in 2025, investors should look ahead to 2026, a more likely scenario of growth re-accelerating, UER falling back and underlying inflation being sticky, forcing the Fed to contemplate rate hike by year end, a reminiscent of late 1998-1999 event. The main difference is that the Fed was forced to reverse the 1998 cuts on strong growth/TMT bubble versus persistent high inflation now (core inflation has been above Fed 2% for 5 years, likely remains so for another 2 years at the minimum)

The U.S. fiscal policy will turn from negative impulse in 2025 due to tariff as I warned in my Bloomberg interview just before the Christmas 2025 (https://lnkd.in/e_aUKkdY ) to positive impulse in 2026 from OBBBA esp the large tax rebate cheques on top of super easy financial conditions (FCI), political pressure for strong growth ahead of midterm election, and the unfolding AI investment boom.

Many will argue back that the next Fed chair appointed as a Trump loyalist will keep cutting rates in H2, 2026 regardless what I said above. However the chair could be out-voted by a FOMC majority if data turns out to be similar to my scenario or the bond market will force the Fed to change course , not dissimilar to TACO after the Liberstion Day in April.