Financial Markets | Nomura has abandoned its call for two interest rate cuts in 2026 and now expects the Federal Reserve to leave borrowing costs unchanged. The reversal adds to a growing Wall Street consensus that persistent inflation is blocking the path to easier policy, with direct implications for startup financing, venture valuations and AI infrastructure spending.
Nomura no longer expects the Federal Reserve to cut rates in 2026. That puts startup funding, venture valuations and AI infrastructure plans back under the pressure of expensive capital.
Nomura has made the kind of forecast change founders should not treat as background noise. The brokerage scrapped its earlier call for two quarter-point Federal Reserve cuts in September and December, and now expects rates to stay where they are through the rest of 2026.
Reuters reported on May 22 that Nomura made the shift after hotter inflation readings, stronger economic data and fading support inside the Federal Open Market Committee for easing. The firm still believes incoming Fed Chair Kevin Warsh may prefer lower rates, but its May 21 note said recent data and Fed commentary make it harder for him to win over a majority of policymakers.
That matters because the market has spent much of the year walking away from the idea that easier money was just around the corner. Barclays, Bank of America, Goldman Sachs and UBS have all moved their expected timing for cuts later, while banks including BNP Paribas, HSBC, J.P. Morgan and Standard Chartered have been closer to the no-cut camp. For founders trying to raise fresh capital, the message is simple: 2026 is no longer a year to wait for cheaper money to solve the model.
Why the zero-cut call matters for startups
Interest rates are not just a macro headline. They set the tone for how investors value future growth. When rates stay high, future cash flows are discounted more heavily, which weighs on the valuations of companies that are still spending aggressively today for profits that may arrive years from now.
That is especially painful for growth-stage startups. A company that could justify a premium valuation in a low-rate market now has to show cleaner unit economics, a shorter path to profitability and a more disciplined burn rate. Debt also becomes a less attractive bridge, because interest expense eats into runway at the exact moment investors are asking management teams to conserve cash.
The same pressure moves through venture funds. Limited partners can earn meaningful returns in safer assets when Treasury yields are elevated, so venture managers have to work harder to justify illiquid, higher-risk commitments. That tends to tighten the capital pool, slow deployment and push weaker companies toward down rounds, structured financing or acquisition talks.
The April Fed meeting added to that caution. The committee held the target range at 3.50 percent to 3.75 percent, but four officials dissented, the most fractured vote in decades. Axios noted this week that CME FedWatch pricing put the odds of at least one 2026 rate hike near 60 percent, while the chance of cuts had become minimal. That is a dramatic reversal from the start of the year, when many investors still expected the next move to be lower.
Inflation is doing the blocking
The main obstacle is inflation. The Bureau of Labor Statistics reported that consumer prices rose 3.8 percent in the 12 months through April, the fastest pace since May 2023. Energy was a major driver, with gasoline and fuel costs pushed higher by the Iran war and tighter oil supply. That kind of shock is difficult for the Fed to ignore because it can flow into transportation, shipping, food and household costs.
The problem for Warsh is that a chair can influence the tone of the committee, but not repeal the data. If inflation is moving away from the Fed's 2 percent target, policymakers who are already skeptical of easing have more reason to resist cuts. Some may even argue for another hike if price pressure spreads beyond energy and into services or wages.
Bond markets are already reflecting that risk. Long-term Treasury yields have climbed back into levels that make investors pay attention, with the 30-year yield recently trading above 5 percent. For public technology stocks, that raises the bar for earnings growth. For private startups, it makes every funding round more sensitive to assumptions about margins, cash burn and eventual exit value.
AI infrastructure feels the squeeze first
The rate backdrop is particularly important for AI infrastructure companies because their growth is capital intensive. Data centers, power contracts, chips, cooling systems and networking equipment require enormous upfront spending before revenue arrives. Large technology companies can finance some of that with cash, but the broader buildout increasingly depends on credit markets and project financing.
Morgan Stanley has estimated that major technology companies could spend more than $1 trillion on AI infrastructure across 2025 and 2026. Debt markets are expected to carry a meaningful share of that load. When borrowing costs remain high, fewer projects clear the return threshold, and the economics become more fragile for smaller AI infrastructure providers that lack the balance sheets of Microsoft, Alphabet, Amazon or Meta.
Crypto and gold sit on opposite sides of the same rate debate. Higher rates usually hurt Bitcoin and other non-yielding risk assets because investors can earn income elsewhere without taking the same volatility. Gold also pays no yield, but persistent inflation can support demand for it as a store of value. That explains why gold has remained firm even as the rate outlook has turned more hawkish.
The next major marker is the Fed's June 16-17 meeting, which the central bank calendar lists as the next decision point and one tied to fresh economic projections. For founders, investors and capital-hungry AI companies, the practical takeaway is already clear. Build plans around expensive money, not a rescue from the Fed. If cuts eventually come, they will be a tailwind. They should not be the strategy.