Credit Agricole is now penciling in two rate cuts by the Fed for this year, one in September and one in December. But unlike other houses, they are expecting a much higher terminal rate with them anticipating an extended pause in policy with a target rate of 4.00%.

The firm’s argument is that sticky inflation would see more limited room for the Fed to pursue aggressive easing and while the US economy is slowing, it is not falling into a recession yet.

Credit Agricole argues that tariffs passthrough will see inflation re-accelerate albeit likely to be temporary. However, the labour market remains relatively healthy despite what recent figures might suggest and that will allow the Fed more room to not give in to calls for a more aggressive easing cycle.