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Natixis U.S. Chief Economist Christopher Hodge said in a recent interview that inflation will be the Federal Reserve’s primary concern for the remainder of 2026, but that does not mean monetary policy will move accordingly. He expects the Fed to keep interest rates unchanged throughout 2026, while noting that newly appointed Chair Kevin Warsh may have already created a policy dilemma for himself with his overly hawkish opening remarks.
Hodge, a former Principal Economist at the New York Fed and former Deputy Director for Europe and Eurasia at the U.S. Treasury Department, pointed out that the Fed’s current policy reaction function is clearly tilted toward price stability, as the U.S. has failed to achieve its 2% inflation target for more than five years, while tariffs and energy shocks have persistently pushed prices higher over the past two years. Natixis believes that the Fed’s optimal choice is to extend the waiting period until the transmission channel from external price pressures to core inflation becomes clearer.
Warsh’s Hawkish Stance Conceals a Credibility Trap
Regarding Chair Warsh’s rejection of forward guidance and refusal to participate in the dot plot, Hodge acknowledged that such an approach is reasonable given the current highly uncertain environment. However, he also warned that Warsh’s emphatic rhetoric emphasizing the commitment to price stability at his very first meeting may have compressed future policy flexibility. If subsequent inflation readings continue to trend higher, markets will pressure the Fed to follow through with rate hikes, potentially trapping Warsh in a “credibility trap” of his own making.
Some observers believe Warsh deliberately struck a hawkish tone to demonstrate his independence from President Trump. But Hodge argued that Warsh has been consistently hawkish throughout most of his career, having only briefly adopted dovish views during his two previous bids for the Fed chairmanship. His current stance is more of a “reversion to the mean” rather than a strategic pivot. Since the June FOMC meeting, core PCE has come in better than expected, oil prices have declined, core GDP has been revised downward, and the payrolls print was much weaker than anticipated—none of which supports a July rate hike. Hodge stated bluntly: “If they didn’t pull the trigger in June, a July hike is not on the table.”
U.S. Policy Uncertainty Drives Central Bank Gold Accumulation
On the reserve allocation front, Hodge noted that while Russia’s full-scale invasion of Ukraine in 2022 served as the catalyst for accelerating “de-dollarization,” the real driver sustaining this trend has been U.S. policy volatility—particularly in trade and sanctions policy. Central banks have not engaged in large-scale selling of dollar assets; rather, the more common approach has been a lack of reinvestment in dollar positions—a form of “quiet quitting.”
Although the U.S. private sector remains the most dynamic, flexible, and innovative in the world, providing underlying support for the dollar, the willingness to allocate to the dollar at the sovereign reserve level has clearly weakened. Gold, as a reserve asset free of sovereign risk, enjoys solid support for long-term buying demand and continues to gain prominence in global official reserves.
Conclusion
Taken together, domestic inflationary pressures in the U.S. remain moderate, while external energy disruptions exhibit cyclical characteristics. Natixis expects the Fed to remain on hold throughout 2026. However, Warsh’s strategy of opening with a hawkish stance while diluting the forward guidance communication framework—though appropriate for the current economic context—has created constraints on his own policy space. Meanwhile, U.S. policy unpredictability continues to erode the dollar’s appeal in official reserves, and gold’s role as a core diversification option is becoming increasingly compelling.
