Inflation to remain sticky, Jahangir Aziz rules out Fed rate cut in 2026

As geopolitical tensions intensify and crude oil markets react sharply, investors are facing a complex mix of inflation risks, monetary policy uncertainty and global supply dynamics. In a conversation with ET Now, JPMorgan economist Jahangir Aziz suggested that the current situation is much more layered than what headline indicators such as Brent crude prices suggest.

Speaking on the scale of the escalation, Aziz said, “Look, it’s very difficult to say how bad or how big it will be or how long it will last.” He noted that while the recent rise in oil prices reflects growing market anxiety, “the growth of the oil market clearly shows you that the market is nervous… but that’s not the story.” According to him, the global oil market has become increasingly fragmented, making widely tracked benchmarks for major economies less relevant. “The oil market is completely fragmented… Brent reflects the Atlantic basin, but countries like China and India are dependent on the Middle East,” he said, adding that regional benchmarks tell a more accurate story. “Oman and Dubai prices were already above 150… and India’s basket was at $145,” Aziz pointed out, adding, “We should stop looking at Brent… Oman and Dubai prices are really important for Asian economies.”

The US On the Federal Reserve’s policy outlook, Aziz pushed back against expectations of easing, maintaining that he consistently ruled out a rate cut this year. “We did not cut rates in 2026 at the beginning of the year and in fact, the next step will be a rate hike in 2027,” he said. He emphasized that this assessment is rooted in labor market dynamics rather than recent geopolitical developments. “This had nothing to do with the war… it was based on the dynamics of the US labor market,” Aziz explained. He argued that even modest job growth could sustain inflationary pressures. “Even a modest improvement in jobs… would raise wages and keep inflation above 2%,” he said. He also highlighted a more cautious stance from the Fed on energy-driven inflation, noting that policymakers have indicated they see such price increases as “highly unlikely.”

Turning to the bond market, Aziz said the more important development is not just the rise in yields but the shift in expectations reflected in the yield curve. “The market took the Fed call in a hawkish tone… and flattened the curve,” he observed, “it’s flat… rather than the 10-year rate going up is the big story.” As inflation concerns persist and hopes for a rate cut fade, he expects this trend to continue. “As hopes of a rate cut in 2026 dim… you’ll see more flatness,” he said. Aziz also warned that if inflation rises, it could impact demand. “If inflation becomes sticky… you will start to see destruction of demand,” he said, adding that the expectation of such a slowdown could also influence market prices. “In an environment of demand destruction … it’s hard to see the 10-year actually blowing,” he noted.

Overall, Aziz’s assessment points to a more complex global backdrop where conventional indicators may not fully capture the underlying risks. With oil markets fragmenting, inflation persistent and central banks remaining cautious, investors may need to look beyond surface-level cues to navigate the evolving landscape.