- US: US consumption grew robustly last year, though sustaining such growth may be untenable in 2026; the Fed has the tools to counter any incipient downside to consumption; we expect two 25 bps rate cuts to be delivered in 2H26
- Singapore: We view Budget 2026 as a strategic, forward-looking plan that sharpens Singapore’s economic competitiveness and strengthens the social compact under the Forward Singapore agenda, underpinned by fiscal discipline
- Thailand: We expect the dovish BOT to cut its policy rate by 25 bps to 1.00% in 2026, but it will likely hold in February following better-than-expected 4Q25 growth; we maintain our forecast for slower growth of 1.6% in 2026, given various challenges
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US: Slowing US consumption; we pencil two rate cuts in 2H26. Despite trade wars and policy uncertainty, sticky inflation, and geopolitical tussles, US consumption remained strong through 2025. We estimate a 4% growth in retail spending last year – the highest in three years. However, there are early signs of a slowdown, especially in the 4Q25 data. We estimate progressively slower retail sales growth from September onward across various permutations of the data (e.g. including or excluding auto sales). The implication of this development is visible in real-time GDP estimates. The Atlanta Fed’s recent downward revision of its US GDP Nowcast, from over 5% to over 3%, has been driven entirely by slowness in consumption growth.
Placed in context, the consumption trend does not appear worrisome. The US household/GDP ratio has been declining for half a decade, net worth has risen considerably due to stock market gains, and real interest rates have fallen following Fed rate cuts. Aided by tax cuts from President Trump’s legislative measures last year, consumption ought to remain resilient, even if it is not sustainable at last year’s torrid pace.
That said, tariff passthrough to inflation and job-related uncertainties could weigh on consumer sentiment. Oil prices, currently low, could spike amid US actions in the Middle East, posing further downside risks to sentiment. Survey readings, such as the Michigan Survey, highlight a bifurcated economy. Households at the lower end of the income spectrum, who have minimal exposure to stock market gains, are feeling particularly despondent, and these readings could deteriorate further.
Authorities have tools to address such eventualities. The Fed has been under considerable pressure from the White House to cut rates in any case, and emerging downside risks to consumption would provide ample motivation.
Meanwhile, recent Fed minutes were more hawkish than generally expected, as policymakers discussed a potential rebound in the labour market, sticky inflation, and even the possibility of rate hikes. With these views, the hurdle for near-term cuts remains high.
We have pencilled in two Fed rate cuts this year, one in 3Q26 and another in 4Q26. We do not believe inflation remaining well over target will be a constraint. In our view, sub-2% inflation is unlikely to characterise the US economy for some time. Since the pandemic, the Fed’s aim seems to have been to run the economy “hot”, a stance we expect to continue under incoming Chair Warsh.
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Related Insights
- Research Library24 Feb 2026
- DACS: Lesser impact from US tariffs24 Feb 2026
- India markets: Cautious relief from US tariff ruling, domestics sway bonds24 Feb 2026
Related Insights
- Research Library24 Feb 2026
- DACS: Lesser impact from US tariffs24 Feb 2026
- India markets: Cautious relief from US tariff ruling, domestics sway bonds24 Feb 2026