BofA and Goldman Sachs Push Back Fed Rate Cut Forecasts Amid Inflation and Labor Market Concerns

Bank of America Global Research and Goldman Sachs have become the latest major financial institutions to revise their expectations for the timing of Federal Reserve interest rate cuts, citing elevated energy prices fueling inflation and persistently robust labor market conditions.

BofA Global Research now anticipates that the Fed will hold interest rates steady for the remainder of this year, implementing two 25-basis-point cuts in July and September 2027. Goldman Sachs has postponed its forecast for the first rate cut from September 2026 to December 2026 and March 2027.

Ongoing geopolitical tensions in the Middle East, now in their tenth week, have contributed to rising energy costs, prompting policymakers to remain vigilant about inflation risks. Several global investment banks have adjusted their 2026 U.S. rate cut projections, revealing a notable divergence in views: some institutions foresee modest cuts within the year, while others predict no cuts at all.

Data released last Friday showed U.S. job growth in April exceeded expectations, with the unemployment rate holding steady at 4.3%, reinforcing market expectations that the Fed will maintain its current policy stance and keep rates unchanged in the near term.

Analysts at Goldman Sachs stated in a research note dated May 8: "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."

At its April 29 policy meeting, the Fed voted to keep interest rates unchanged, with the 8-4 split among policymakers representing the most significant divergence since 1992. Current U.S. inflation levels remain well above the Fed's 2% target.

Market traders currently expect the Fed to maintain its benchmark interest rate within the 3.50%–3.75% range until the end of the year.

Analysts at Bank of America noted in their May 8 report: "We believe incoming Fed Chair Warsh would be inclined to advocate for rate cuts, but current economic data does not yet support an immediate move."

"However, by next summer, inflation is expected to move significantly closer to the target, at which point formal discussions about rate cuts could commence."