Wall Street Banks Push Back Expectations for Federal Reserve Rate Cuts as Inflation Pressures Persist

BY COMFORT OGBONNA

Major financial institutions, including BofA Global Research and Goldman Sachs, have revised their expectations for U.S. Federal Reserve interest rate cuts, pushing them further into the future. The adjustments reflect ongoing concerns about persistent inflation, driven in part by rising energy prices and a strong labor market that continues to show resilience.

BofA Global Research now expects the Federal Reserve to keep interest rates unchanged for the remainder of the year. The firm’s updated outlook suggests that rate cuts may not begin until July and September 2027, with two 25-basis-point reductions projected during that period. This marks a significant shift from earlier expectations of more near-term easing.

Goldman Sachs has also adjusted its forecast, now anticipating rate cuts in December 2026 and March 2027. This is a delay from its previous projection, which had expected the first cut as early as September 2026. Analysts at the bank noted that if the labor market remains strong and does not weaken meaningfully in the near term, the Federal Reserve could be forced to wait until 2027 before implementing further easing.

These revisions come as a growing number of global brokerages reassess their rate outlooks for 2026. Views are increasingly split, with some institutions still expecting modest easing next year, while others believe there may be no rate cuts at all. The uncertainty is largely tied to global economic conditions, particularly the ongoing 10-week conflict in the Middle East, which has contributed to higher energy prices and added to inflationary pressures worldwide.

Recent economic data has reinforced the cautious stance among policymakers. A report released on Friday showed that U.S. employment rose more than expected in April, while the unemployment rate remained steady at 4.3%. The strength of the labor market has strengthened expectations that the Federal Reserve will maintain current interest rates for an extended period.

The central bank last met on April 29, where it decided to keep interest rates unchanged in a closely divided 8–4 vote, the narrowest margin seen since 1992. Inflation in the United States remains above the Federal Reserve’s 2% target, further limiting the likelihood of immediate policy easing.

Market participants are currently pricing in expectations that interest rates will stay within the 3.50% to 3.75% range through the end of the year. This reflects a broader consensus that the Fed will remain cautious until there is clearer evidence of inflation returning sustainably to target levels.

In a recent note, analysts at BofA Global Research suggested that while incoming Federal Reserve leadership may favor lower interest rates, current economic data does not yet support such a move. They added that while rate cuts may still be possible in the longer term, inflation would need to move significantly closer to the central bank’s target before any policy shift is justified.