BofA drops blunt warning about Fed rate cuts

BofA Global Research has recently adjusted its Federal Reserve rate-cut forecast, pushing it to much later dates due to inflation and labor market conditions. The brokerage now anticipates the Fed to stay on hold for the remainder of the year, with two quarter-point cuts in July and September 2027.

According to Reuters, several global brokerages have also revised their projections for Fed rate cuts in 2026, with some expecting easing and others predicting no cuts at all. The Iran war, which lasted 11 weeks, led to increased energy prices and made policymakers wary of inflation risks.

During the April 29 meeting, the Fed maintained the benchmark Federal Funds Rate at 3.50% to 3.75% in a closely divided 8–4 vote, the closest split since 1992.

Aditya Bhave, the head of U.S. economics at Bank of America, emphasized that the current data does not support rate cuts this year. Core inflation is high and rising, and the strong April jobs report further solidified this stance.

The Fed’s dual mandate from Congress requires balancing maximum employment and stable prices. Lower interest rates support hiring but can lead to inflation, while higher rates can cool prices but weaken the job market.

Traders are pricing in the next interest-rate cut for mid-to-late 2027, with bond traders shifting their outlook on monetary policy. There is an increasing belief that the Fed might raise interest rates before cutting them due to persistent inflation risks and geopolitical tensions.

The Kalshi prediction market estimates a 47% chance of a Fed rate hike before July 2027.

The upcoming April Consumer Price Index report, to be released on May 12, is highly anticipated. The March CPI showed an inflation rate of 3.3%, surpassing the Fed’s 2% target.

Despite the rise in energy prices due to the Iran war, U.S. employers added more jobs than expected in April, with the unemployment rate holding steady at 4.3%. Federal Reserve Bank of Chicago President Austan Goolsbee suggested that all options, including a possible rate hike, are on the table.

BofA believes that incoming Fed Chair Kevin Warsh may push for lower rates in the future, but current data precludes any immediate cuts. However, cuts could be considered by next summer as inflation approaches the target.

This article was originally published by TheStreet on May 11, 2026, and first appeared in the Fed section.