Standard Chartered: Oil Remains Biggest Risk to Fed Rate Outlook

Standard Chartered expects the U.S. Federal Reserve to keep interest rates unchanged through the second half of 2026 after softer inflation data in June strengthened the case for a prolonged pause in monetary tightening. However, the bank warned that a renewed rise in oil prices remains the single biggest threat to that outlook.

In a research report seen by Al Mal, Standard Chartered said easing inflation suggests the Federal Reserve has likely moved beyond the peak of its tightening cycle, although developments in global energy markets will continue to play a decisive role in shaping future policy decisions.

The bank noted that the U.S. Consumer Price Index (CPI) fell 0.4% month-on-month in June, marking its sharpest monthly decline in several years. According to the report, the inflation pressures seen during the second quarter were driven primarily by higher oil prices rather than broad-based price increases across the economy.

The latest data reinforces the bank's expectation that the Federal Reserve will leave interest rates unchanged through the end of the year and supports the view that the most aggressive phase of U.S. monetary tightening has come to an end.

Standard Chartered also pointed to remarks by Federal Reserve Chair Kevin Warsh, who emphasized the importance of achieving maximum employment during his first congressional testimony, as consistent with a more patient monetary policy stance.

Despite the improving inflation picture, the bank cautioned that another rally in crude oil prices could quickly reignite inflationary pressures and force policymakers to reassess the interest-rate outlook.

Standard Chartered expects crude oil to trade near the upper end of its projected $70–$90 per barrel range in the near term. Nevertheless, it believes major market participants continue to have sufficient incentives to avoid a broader escalation that would push prices sustainably above that range.

Against this backdrop, the bank recommended that investors take advantage of current bond yields while maintaining a preference for short-duration fixed-income securities to reduce exposure to the risk of a renewed inflation shock.

The report also highlighted China, India and Taiwan as markets well positioned to benefit from the broadening rally in Asian equities, supported by continued investor interest in the technology sector.

According to Standard Chartered, the upcoming earnings season for major technology companies will be closely watched for evidence that firms are beginning to generate tangible returns from their artificial intelligence investments, a factor expected to play a significant role in driving market performance in the months ahead.