QNB highlights potential stagflation scenario for US economy

Doha: Qatar National Bank (QNB) predicted that upcoming US Federal Reserve interest rate decisions could lead to a mild stagflation scenario, where gr...

Doha: Qatar National Bank (QNB) predicted that upcoming US Federal Reserve interest-rate decisions could lead to a mild stagflation scenario, where growth slows while inflation remains above target. In its weekly report, QNB noted that the current US administration has clearly focused on monetary policy and has urged the Federal Reserve to deliver large rate cuts and adopt a more flexible stance.

The report explained that monetary policy decisions are normally based on forecasts of key macroeconomic variables and a careful analysis of how interest-rate changes affect economic activity and prices, with the Federal Open Market Committee typically carrying out this process through extensive technical deliberations free from political pressure.

The bank observed that new economic trends has unsettled financial markets, causing significant volatility as investors try to determine the appropriate level of interest rates for pricing assets in the new macroeconomic environment.

US interest rates and Treasury yields were said to provide important information on macroeconomic expectations, particularly through the real yield curve (the gap between yields on 10-year and 2-year Treasury Inflation-Protected Securities). A wider gap indicates expectations of weaker short-term growth relative to the long term.

This gap has widened in 2025 even though long-term real yields have remained stable, suggesting that longer-term growth expectations have not changed while near-term activity is expected to weaken.