BofA Global Research is the latest brokerage to revise its Federal Reserve rate-cut forecast to much later dates, citing elevated inflation due to high energy prices and growing strength in the labor market.
BofA Global Research now expects the Fed to remain on hold for the rest of this year, with two quarter-point cuts in July and September 2027.
A host of global brokerages have recast their projections for Fed rate cuts in 2026, split between some easing and no cuts at all, Reuters reported. This comes as the 11-week Iran war pushed energy prices higher and left policymakers cautious about inflation risks.
The Fed held the benchmark Federal Funds Rate steady at 3.50% to 3.75% at its April 29 meeting in an unusually divisive 8–4 vote, the closest since 1992.
“The data simply don’t warrant cuts this year,” Aditya Bhave, the head of U.S. economics at Bank of America, wrote on May 8, as Bloomberg reported. “Core inflation is too high, and moving up. The solid April jobs report was the last straw, especially given hawkish Fedspeak.”
Bhave and colleagues now expect that the Fed will not cut rates again until July 2027, a shift from their previous forecast of September 2026.
Fed’s dual mandate requires tricky balance
The Fed’s dual mandate from Congress requires maximum employment and stable prices.
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Lower interest rates support hiring but can fuel inflation. This risks fueling further inflation, potentially leading to an inflationary spiral.
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Higher rates cool prices but can weaken the job market. This increases the cost of borrowing and further stifles economic activity.
When traders price the next Fed rate cut
Traders are currently pricing in the next interest-rate cut for mid-to-late 2027, according to the CME FedWatch Tool.
And as I reported, bond traders are rapidly reshaping their outlook on U.S. monetary policy, increasing bets that the Fed could raise interest rates before cutting them as persistent inflation risks and geopolitical tensions upend dovish expectations.
The Kalshi prediction market estimates a 47% chance of a Fed rate hike before July 2027.
Inflation figures show hike in energy prices
The April Consumer Price Index report will be released May 12.
The March CPI read pointed to an inflation rate of 3.3%, well above the Fed’s 2% goal.
Related: Fed official triggers new rate-cut warning
Economists estimate that the April headline CPI will be up 0.6% from March to April and 3.7% from the year prior with core CPI rising 0.3% month over month and 2.7% year over year.
The Bureau of Economic Analysis released the March 2026 Personal Consumption Expenditures — the Fed’s preferred inflation gauge — on April 30, showing an acceleration in headline inflation largely driven by energy costs.