Politics may trump macros in 2026 US rate cycle: Rajeev Agrawal

The latest US macroeconomic data has reopened questions around the true state of the economy. Inflation and jobless claims have come in softer than expected, but the timing of the numbers — coinciding with a recent US government shutdown — has led many to question their reliability. Market participants remain cautious, aware that temporary distortions could be masking deeper trends in prices and employment.

Speaking to ET Now, Rajeev Agrawal of DoorDarshi Fund said the inflation data needs to be viewed carefully, noting that “the CPI numbers… really have to be taken with a grain of salt.”

He added that even policymakers appear unsure about the labour market, pointing out that “there is a lot of ambiguity in the data that we are seeing.” According to Agrawal, while inflation continues to hurt the lower-income segments of society, clarity on the broader economic picture will take time and “we will have to wait for a few more months to get a better sense of that.”

With inflation at 2.7% still above the Federal Reserve’s comfort zone, signs of cooling in the labour market have revived expectations of rate cuts. However, Agrawal believes monetary policy in 2026 may be shaped as much by political considerations as by economic data. He said “next year will be a juxtaposition of how the economic numbers are but also what the political reality is,” adding that the US president “has been very vocal that he wants lower rates.” Based on this backdrop, DoorDarshi Fund expects a sharper easing cycle than consensus, with Agrawal stating, “we think that there will be at least four cuts going into all of calendar year 26.”

Globally, diverging central bank actions are creating fresh uncertainties. While the US is expected to move towards rate cuts, Japan is increasingly being forced to raise rates as inflation pressures build. Agrawal said this divergence means “the whole carry trade is obviously going to get impacted,” with consequences for currencies and capital flows. He also warned that higher rates could strain Japan’s public finances, noting that “as the interest rates rise there, the interest cost on the debt will go up meaningfully.”

Looking ahead, Agrawal expects global growth to slow as trade frictions increase and efficiency in global supply chains declines. He said “the economic growth next year will be slower because there is a lot more of friction that has come in in the global trade,” though he cautioned that the impact may not be immediate, adding that “these things play out over time, multiple quarters, maybe multiple years.” With central banks across regions responding to very different domestic realities, the intersection of economics and geopolitics is likely to keep markets on edge through 2026 and beyond.