BofA Global Research is the latest brokerage firm revise its Federal Reserve rate-cut forecast until recent days, it accounts for inflation due to high energy prices and the growing strength of the labor market.
BofA Global Research now expects the Fed to stay on hold until the end of this year, with a two-point rate cut July and September 2027.
A number of global brokerages reiterated their forecasts for Fed rate cuts in 2026, split between some easing and no cuts at all, Reuters reported. This comes as Iran’s 11-week war has driven up energy prices and left policymakers wary of inflationary risks.
The Fed held the benchmark Federal Funds Rate steady at 3.50% to 3.75% at its April 29 meeting in an unusually split vote of 8–4, the closest since 1992.
“Data easily don’t let the cuts happen this year,” Aditya Bhave, chief US economist at Bank of America, wrote on May 8, as Bloomberg reported. A strong April jobs report was the last, especially given the hawkish Fedspeak.”
Bhave and colleagues now expect the Fed will not cut rates again until July 2027, a change from their previous forecast of September 2026.
The Fed’s dual mandate requires a tricky balance
The Fed’s dual mandate from Congress requires high employment and stable prices.
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Low interest rates support employment but can fuel inflation. This risks fueling inflation, which could lead to price increases.
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High prices are cool prices but it can weaken the job market. This increases the cost of borrowing and further inhibits economic activity.
When traders sell the price of the next Fed rate cut
Traders are currently pricing in the next interest rate cut in mid-2027, according to the CME FedWatch Tool.
And as I reported, bond traders quickly changed their view on US monetary policy, increasing their bets on the Fed. can raise interest rates before cutting them as persistent inflation risks and political tensions raise unusual expectations.
The Kalshi forecast market estimates a 47% chance of a Fed rate hike before July 2027.
Inflation figures show an increase in electricity prices
I April Consumer Price Index report will be released on May 12.
The CPI reading for March indicates an inflation rate of 3.3%, above the Fed’s 2% target.
Related: Fed official triggers new rate cut warning
Economists estimate that the CPI for the April headline will rise 0.6% from March to April and 3.7% from the previous year when the core CPI increased by 0.3% month-on-month and 2.7% year-on-year.
The Bureau of Economic Analysis released the March 2026 Personal Consumption Expenditures — the Fed’s preferred inflation gauge – on the 30th of April, which shows the acceleration of inflation in the topic which is mainly driven by the cost of energy.
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PCE title (year by year): 3.5%, up from 2.8% in February
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Core PCE (year-over-year): 3.2% (excluding food and energy), up from 2.9% in February
April’s strong jobs report reports shifts to moderate the outlook
Despite rising energy costs spurred by the Iran war, American employers added more jobs than expected in the second month, and the unemployment rate remained steady in April, the Bureau of Labor Statistics reported on May 8.
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Nonfarm payrolls up 115,000 from last month after the biggest surge in March, marking the strongest two-month increase since 2024.
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The unemployment rate has not changed 4.3%.
Federal Reserve Bank of Chicago President Austan Goolsbee said all options beyond interest rate policy, including a possible rate hike, are on the central bank’s table.
“I don’t see how you can look at the current situation and, at least for me, look at that the only thing on the table that is conceivable is a rate cut,Goolsbee said this on May 8 in an interview with Bloomberg Television.
Goolsbee’s comments add to the ongoing change among Fed policymakers away from any consideration of a rate cut in the near future.
BofA: Warsh will still push prices lower
A BofA note said that with inflation holding above target and an oil glut still on track, would a weak April jobs report to maintain a balance of risks within the range that incoming Fed Chairman Kevin Warsh may cut from the June Federal Open Market Committee meeting.
“We think Warsh will want lower prices, though data flow prevents current cuts,” a BofA note, emailed to TheStreet, said.
“However, cuts should play next summerand inflation is very close to the target,” said the paper.
Related: Goldman Sachs sends mixed message on Fed interest rate cuts
This story was originally published by TheStreet on May 11, 2026, where it appeared first in the Fed section. Add TheStreet as a favorite source by clicking here.
