NextFin news, Doha, October 4 (QNA) – Qatar National Bank (QNB) announced on Saturday that it expects the US Federal Reserve to implement a slower cycle of interest rate cuts than currently anticipated by market consensus. QNB projects the Fed will reduce its policy rate by 25 basis points twice more in 2025 and once in 2026, bringing the policy rate to approximately 3.5%.
QNB’s weekly economic commentary highlighted that leading economic indicators suggest the US economy is undergoing a soft deceleration rather than a sharp downturn. The bank forecasts real GDP growth of 1.7% for 2026, supported by a resilient labor market, continued expansion in the services sector, and only a moderate contraction in manufacturing.
The report noted that after holding rates steady since late 2024, the Federal Reserve cut its benchmark rate by 25 basis points to 4.25% in September 2025. This move came amid rising uncertainty driven by volatile trade and fiscal policies, which have pushed risk measures to record highs and prompted policymakers to adopt a cautious “wait-and-see” approach.
QNB emphasized that inflation risks remain tilted to the upside, with headline inflation fluctuating around 2.9%, above the Fed’s 2% target. Conversely, employment risks point downward, creating a challenging policy environment where the Fed’s dual mandate of low inflation and maximum employment is in tension.
QNB identified three key factors underpinning its outlook for a gradual easing cycle. First, the labor market is weakening only gradually, consistent with a soft landing. The unemployment rate stood at 4.3% in August 2025, within a range considered consistent with balanced employment. Even accounting for emerging impacts of artificial intelligence on jobs, the unemployment rate is expected to rise modestly to 4.4% by the end of 2026, not signaling an imminent recession.
Second, the services sector, which accounts for over 75% of US economic output and employs more than 80% of private-sector workers, continues to expand modestly. The Purchasing Managers Index (PMI) for services has averaged 51 points over the past three months, indicating stable growth rather than contraction.
Third, manufacturing activity, while contracting, remains resilient. The manufacturing PMI has hovered just below the 50-point threshold that separates contraction from expansion, reflecting contained weakness despite supply chain disruptions and tariff-related uncertainties.
QNB’s analysis suggests that these factors collectively do not justify the aggressive rate cuts anticipated by many market participants. Instead, the bank expects a more measured approach by the Federal Reserve as it balances inflation control with sustaining economic growth and employment.
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