Influenced by elevated energy costs driving inflation and a resilient labor market, Bank of America Global Research and Goldman Sachs have become the latest major financial institutions to push back their expectations for the timing of Federal Reserve interest rate cuts.
Bank of America Global Research now anticipates the Federal Reserve will keep interest rates unchanged for the remainder of this year, postponing two 25-basis-point rate cuts to July and September 2027. Goldman Sachs has adjusted its forecast for the first rate cut from September 2026 to December 2026 and March 2027.
The ongoing conflict in the Middle East, now in its tenth week, has contributed to rising energy prices, prompting policymakers to adopt a more cautious stance on inflation risks. This has led several international investment banks to revise their 2026 U.S. rate cut forecasts, resulting in a divergence of views: some predict cuts within the year, while others expect rates to remain unchanged throughout.
Data released last Friday showed U.S. non-farm payrolls rose more than expected in April, with the unemployment rate holding steady at 4.3%, further reinforcing market expectations that the Fed will maintain its current policy stance in the near term.
Goldman Sachs analysts wrote in a May 8 research note, "If the labor market does not weaken significantly this year, we expect the Federal Open Market Committee to delay the final two rate cuts until 2027."
The Federal Reserve held interest rates steady at its April 29 policy meeting, with a vote of 8 in favor and 4 opposed, marking the largest divergence since 1992. Current U.S. inflation levels remain well above the Fed's 2% policy target.
Market traders expect the Federal Reserve to keep the benchmark interest rate within the 3.50%–3.75% range unchanged until the end of the year.
Bank of America analysts stated in a May 8 research report, "We believe [incoming Fed Chair] Warsh is inclined to advocate for rate cuts, but current economic data trends do not yet support an immediate reduction."
"However, as inflation moves significantly closer to the target level, rate cuts next summer may be back on the agenda."
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