Bank of America: Fed cuts unlikely until 2027

Interest rates are turning into a longer story than markets wanted. Bank of America’s economists now think the Federal Reserve may not cut at all until the second half of 2027 — not later this year, not in 2026, but much later. That matters because the Fed’s benchmark rate feeds straight into mortgages, credit cards, auto loans, and the yields people can earn on cash. The gap here is simple: investors kept waiting for inflation to cool enough to unlock cuts, but the data keeps refusing to cooperate. ### What changed this week? The big change was the forecast. Bank of America shifted to one of the most hawkish calls on Wall Street, arguing that stubborn inflation and a labor market that is slowing only gently leave the Fed with little reason to ease soon. That came right after the Fed’s April 28–29 meeting, where officials left rates unchanged and repeated that inflation is still elevated. (cbsnews.com) ### Why does the jobs report matter so much? Because rate cuts usually show up when the Fed thinks growth or hiring is cracking. April’s jobs report did not show that. Payrolls rose by 115,000, the unemployment rate stayed at 4.3%, and hiring gains still showed up in health care, transportation and warehousing, and retail. That is not a booming labor market, but it is stable enough that the Fed can keep waiting. (cbsnews.com) ### Why isn’t “slower hiring” enough? Because the Fed is balancing two risks, and right now inflation still looks like the more dangerous one. CNBC’s read on the jobs data was basically that the labor market is no longer weak enough to force the Fed’s hand, while the cost of living problem remains very real. A soft-but-not-broken economy is awkward for borrowers, because it keeps the door open to “higher for longer.” (bls.gov) ### What is Bank of America worried about? Persistent inflation — especially the kind that stops drifting lower and gets stuck above target. The bank’s economists pointed to trend inflation that has not clearly moved below 3%. They also flagged forces that could keep prices firm, including tariffs and AI-driven demand pushing up some hardware and software costs. In other words, the problem is not one hot month. It is the possibility that inflation has a floor higher than the Fed wants. (cnbc.com) ### Is this the Fed’s own forecast? Not exactly. The Fed has not promised no cuts until 2027. Its March projections still showed rates moving lower over time through 2028. But the official statements have stayed cautious, and policymakers keep saying they need more confidence that inflation is heading back to 2%. Bank of America is making an inference from that caution plus the incoming data — and it is a much more hawkish inference than many investors were hoping for. (cbsnews.com) ### What does this mean for regular people? Borrowing probably stays expensive for longer. Mortgage rates do not move one-for-one with the Fed, but a delayed cutting cycle makes broad relief less likely. Credit card and auto loan costs also stay under pressure. The flip side is that cash keeps earning something — high-yield savings accounts, money market funds, and short-term Treasurys remain more attractive when the Fed is stuck on hold. (federalreserve.gov) ### Could this still change? Yes — fast, if the data breaks. A sharper rise in unemployment, a clear drop in inflation, or a financial shock could all change the Fed’s timing. But that is the point of Bank of America’s call: right now, the burden of proof has shifted. Markets spent a long time asking what would justify cuts. Turns out the better question is what would force them. (cbsnews.com) ### Bottom line? This is not just a forecast about one meeting. It is a warning that the whole rate-cut timeline may have slipped by years. If Bank of America is even partly right, the easy-money reset people expected is not around the corner — and “wait longer” becomes the main story for both borrowers and savers. (cbsnews.com) (cnbc.com)