Markets Reprice Fed Path Amid IMF Growth Upgrade; US Policy Risk Looms

The macroeconomic landscape shifted this week as fresh data and political headwinds forced investors to reassess the Federal Reserve's immediate policy trajectory. A convergence of upgraded global growth forecasts and domestic political pressure is creating a complex environment for the US Dollar.

High-Impact Data Snapshot

• Consensus Shift: 58% of economists now expect rates to hold at 3.50%-3.75%.
• Growth Outlook: IMF raises 2026 global forecast to 3.3%.
• Energy Imbalance: Supply growing by 2.5 million bpd vs demand growth of 930,000 bpd.

Fed Pause Gains Traction

Sentiment regarding the Federal Reserve's January meeting has pivoted sharply. A recent survey of economists indicates that 58% now expect the central bank to keep the benchmark interest rate unchanged in the 3.50%-3.75% range through the first quarter. This marks a significant reversal from last month, when a rate cut was the consensus expectation.

The shift is driven by the US economy's continued outperformance, fueled in part by a surge in technology and AI-related investment. The International Monetary Fund (IMF) has subsequently raised its 2026 global growth forecast to 3.3%, citing the resilience of the US and Chinese economies as key drivers.

White House vs. The Fed

Despite the economic strength, the Fed's independence is facing unprecedented tests. Reports indicate growing friction between the Trump administration and Fed Chairman Jerome Powell. The White House has criticized the central bank for not cutting rates aggressively enough, with the Justice Department reportedly scrutinizing internal Fed operations.

This political dimension adds a layer of risk premium to US assets. While a “Fed Hold” typically supports the Dollar via the yield channel, threats to institutional independence could undermine long-term confidence in the currency.

Oil Markets Supply Glut

Compounding the macro picture is the International Energy Agency's (IEA) latest report, which warns that a supply glut is forming. While global demand growth forecasts were raised to 930,000 bpd, non-OPEC+ supply is surging by 2.5 million bpd. This imbalance is likely to cap energy prices, dampening headline inflation pressures globally and potentially giving central banks more room to maneuver later in the year.