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TD Securities strategists Oscar Munoz and Eli Nir predict that US economic growth will gradually normalize to its potential by late 2026 as the lingering effects of Iran-related stagflationary risks ease. The analysts highlight that while the Federal Reserve remains cautious about these risks, the US economy is on a path toward sustainable expansion. Key factors include a moderation in inflationary pressures and a gradual shift in monetary policy toward a more neutral stance. This projection suggests a balanced economic trajectory, avoiding both overheating and stagnation.
For markets, this outlook implies a potential shift in Fed policy focus from aggressive rate hikes to a more measured approach. Traders should monitor upcoming Fed statements and economic data for signals on the timing of rate cuts. The normalization of growth could also influence global capital flows, particularly in emerging markets, as investors reassess risk appetites. Additionally, the gradual easing of geopolitical tensions with Iran may reduce volatility in energy markets, indirectly supporting economic stability.
Investors should watch for developments in US-Iran relations and their impact on oil prices, which remain a critical factor for stagflation risks. The timeline for Fed rate decisions and the resilience of US consumer spending will also be key indicators. Central bank policies in other major economies, such as the European Central Bank and Bank of Japan, could further shape the global investment landscape in the coming months.
