Bofa Pushes First Fed Cut All The Way To July 2027

Bank of America Global Research has pushed its Federal Reserve rate-cut forecast deep into 2027, representing one of the most hawkish calls on Wall Street. BofA now expects the Fed to keep interest rates unchanged throughout this year, before delivering two cuts of 25 basis points each in July and September 2027.

BofA had previously penciled in two rate cuts this year, in September and October, a view partly based on the expectation that Kevin Warsh, President Trump's nominee to succeed Jerome Powell as Fed chair, would steer policymakers toward easing monetary policy. But that view has changed amid a shifting economic backdrop, with BofA economists telling clients in a note that "we no longer expect the Fed to cut rates this year," citing the Iran war, tariffs, and the emergence of AI as factors making it harder to forecast rate moves.

Inflation and Labor Market Leave Little Room for Easing

The Fed is grappling with inflation running at 3.3%, which remains stubbornly above its 2% annual target, a problem that has been compounded by higher energy prices since the start of the Iran war. "Core inflation is too high, and moving up," BofA Global Research said in its note, adding that rate cuts are more likely in the second half of 2027 as inflation starts to recede.

A stronger-than-expected jobs report has also weakened the case for near-term cuts, with employers adding 115,000 jobs in April, well above forecasts of 65,000 payroll gains. "The data simply don't warrant cuts this year," Aditya Bhave, the head of U.S. economics at Bank of America, wrote on May 8, as Bloomberg reported.

At its April 29 meeting, the Fed kept benchmark interest rates unchanged in a closely contested 8-4 vote, the widest split among policymakers since 1992. The federal funds rate has remained in its current range between 3.5% and 3.75% ever since.

BofA Not Alone in Its Hawkish Stance

According to a forecast table dated May 8, 2026, Bank of America anticipates the first rate cut in July 2027, while Barclays expects it in March 2027. Goldman Sachs projects the first rate cut in December 2026 and March 2027, postponed from its previous forecast of September 2026, according to Reuters. Other institutions, such as Deutsche Bank and HSBC, foresee no changes for an indefinite period.

BofA believes incoming Fed Chair Kevin Warsh may push for lower interest rates, but economic conditions and recent data still leave little room for cuts in the near future, and the bank expects the possibility of rate reductions to begin opening up only next summer as inflation moves closer to the central bank's target.

Sources:
TheStreet: BofA Delays Fed Rate-Cut Forecast Into 2027
CBS News: Fed unlikely to cut interest rates until second half of 2027, Bank of America says
IDNFinancials: BofA and Goldman Sachs delay forecasts for Federal Reserve rate cuts