BofA Global Research is the latest brokerage in review your Fed rate cut forecast until much later, citing high inflation due to high energy prices and the growing strength of the labor market.
BofA Global Research now expects the Federal Reserve to remain on hold for the rest of this year, with two quarter-point cuts in July and September 2027.
A number of global brokerages have restated their projections for Fed rate cuts in 2026, split between some easing and no cuts, Reuters reported. This comes as the 11-week war with Iran drove up energy prices and left policymakers cautious about inflation risks.
The Federal Reserve 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 cuts are not justified this year“Aditya Bhave, head of US economics at Bank of America, wrote on May 8, as Bloomberg reported. “Core inflation is too high and rising. “April’s strong jobs report was the last straw, especially given the Fed’s hawkish talk.”
Bhave and his colleagues now expect the Federal Reserve not to cut rates again until July 2027, a change from its previous September 2026 forecast.
The Fed’s dual mandate requires a complicated balance
The Fed’s dual mandate from Congress requires maximum employment and stable prices.
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Lower interest rates They support hiring but can fuel inflation. This risks fueling higher inflation, which could lead to an inflationary spiral.
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Higher rates cool prices but it can weaken the labor market. This increases the cost of borrowing and further stifles economic activity.
When traders price in 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 views on U.S. monetary policy, raising bets that the Federal Reserve could increase interest rates before cutting them as persistent inflation risks and geopolitical tensions disrupt dovish expectations.
Kalshi Prediction Market estimates a 47% chance of the Fed raising rates before July 2027.
Inflation figures show a rise in energy prices
He April Consumer Price Index Report will be released on May 12.
The March CPI reading pointed to an inflation rate of 3.3%, well above the Federal Reserve’s 2% target.
Related: Fed official triggers new warning about rate cut
Economists estimate that April’s headline CPI will rise 0.6% from March to April and 3.7% year over year, with core CPI increasing 0.3% month over month and 2.7% year over year.
The Bureau of Economic Analysis published the March 2026 Personal Consumption Expenditures: The Fed’s Preferred Inflation Gauge – on April 30, showing an acceleration in headline inflation driven largely by energy costs.