Doha, May 23 (QNA) - QNB Group said mounting inflationary pressures in the United States are complicating the outlook for monetary policy, as higher energy prices, persistent tariff-related pressures and resilient domestic demand keep inflation above the Federal Reserve's target for longer than previously expected.
In its weekly report, QNB said financial markets have sharply revised expectations for US interest rates, with investors now anticipating the Federal Reserve will keep rates broadly unchanged this year at around 3.75%, compared with earlier expectations for two 25-basis-point rate cuts before the escalation of geopolitical tensions.
The bank noted that inflation and growth indicators in the United States had shown signs of stabilization at the beginning of the year, with consumer price inflation continuing to retreat from the post-pandemic peak of nearly 9% recorded in mid-2022, gradually moving closer to the Fed's 2% target. However, that trajectory shifted abruptly following the escalation of the US-Israeli conflict with Iran in late February, the report said.
According to QNB, the military campaign launched on Feb. 28 triggered a sharp rise in energy prices, partially reversing the disinflation trend and pushing inflation back toward 4% -- nearly double the Federal Reserve's target -- prompting markets and policymakers to reassess the monetary policy outlook.
The report said policymakers are now re-evaluating the durability and depth of the new wave of price pressures. It added that the leadership transition at the Federal Reserve, with Kevin Warsh assuming the chairmanship, has further complicated the policy landscape. Warsh had previously argued that structural factors, including productivity gains driven by artificial intelligence, could help lower production costs and consumer prices, potentially paving the way for lower interest rates. Current conditions, however, point to a more challenging scenario.
QNB identified surging energy prices as the primary driver of the latest inflation rebound. Brent crude prices climbed more than 25% in the weeks following the outbreak of hostilities, briefly surpassing $120 a barrel at their peak.
The resulting rise in oil and gas prices led to a rapid increase in gasoline, electricity and transportation costs, intensifying headline inflation pressures. Energy prices within the consumer basket rose 17.9% year-on-year in April, the report said. Beyond the direct impact, higher energy costs have also filtered through supply chains by raising production, logistics and distribution expenses, broadening inflationary pressures across goods and services.
The report also pointed to US trade policy as another major source of inflationary pressure. Tariffs imposed since 2025 have increased the cost of imported goods, partially reversing the easing in inflation seen last year. Average effective tariff rates rose from 2.3% in 2024 to 9.4% currently, while imports account for nearly 15% of U.S. gross domestic product. Estimates from the Federal Reserve Bank of Dallas suggest tariffs have added nearly one percentage point to inflation, QNB said.
At the same time, strong domestic demand continues to reinforce underlying price pressures. Private consumption remains resilient, supported by real income growth and elevated household wealth. U.S. household net worth remains near record levels at around $180 trillion, underpinned by robust equity market performance and stable housing prices.
Although the labor market has shown signs of gradual cooling, it remains historically tight, with unemployment holding near 4.5%, the report added.
QNB also said US fiscal policy remains broadly supportive, with large budget deficits and sustained government spending continuing to bolster demand. Together, these factors are contributing to persistent inflationary pressures, particularly in the services sector, where inflation tends to be more entrenched than in other parts of the economy. (QNA)