Bank of America delays Fed cuts to 2027
- Bank of America scrapped its 2026 Fed-cut call on May 8 and now says the next reductions likely won’t arrive until July and September 2027. - April payrolls rose 115,000 versus a 62,000 Reuters forecast, unemployment held at 4.3%, and BofA’s Aditya Bhave said the data “don’t warrant” cuts. - The backdrop flipped fast: markets now lean toward steady rates through December as inflation, not labor weakness, drives the Fed debate.
Interest rates are back to being an inflation story. That is the whole shift. For months, investors were waiting for softer growth and weaker hiring to force the Federal Reserve into cutting again. But Friday’s April jobs report was firm enough to knock that idea back, and Bank of America responded by pushing its expected Fed cuts all the way from September and October 2026 to July and September 2027. ### What changed on Friday? The April payrolls report came in better than expected. Employers added 115,000 jobs, well above the 62,000 estimate in the Reuters poll, and the unemployment rate stayed at 4.3%. That is not a booming labor market. But it is stable enough that the Fed does not look cornered into easing. (livemint.com) ### Why does that matter so much? Because the Fed cuts when growth is weakening, labor markets are cracking, or inflation is convincingly cooling. Right now, the labor side is not cracking. And inflation is still the bigger headache. CNBC’s read on the mood shift is blunt: the central bank is running out of reasons to cut, while officials can still justify sitting tight — or at least keeping that option open. (livemint.com) ### What did Bank of America actually do? Bank of America made a very specific forecast change. Its U.S. economist Aditya Bhave moved two expected cuts out of this year and into the second half of next year — from September and October 2026 to July and September 2027. The logic was simple and pretty severe: recent data do not justify cuts in 2026. CBS also framed the call as a hawkish turn tied to sticky inflation and resilient hiring. (cnbc.com) ### Is this just one bank being dramatic? Not really. The broader market has been moving in the same direction, even if not everyone is as extreme as Bank of America. Futures pricing on May 8 showed investors leaning more heavily toward no change through the Fed’s December meeting — 74.5%, up from 70.1% the prior session. At the same time, the odds of a 25-basis-point hike dropped to 14.9% from 22.5%, which tells you traders still see inflation risk but think the Fed’s first move is more likely to be “wait” than “raise.” (livemint.com) ### Where does Austan Goolsbee fit in? Goolsbee matters here because he is not talking like someone eager to cut. He said Friday that inflation has been above the Fed’s 2% target for five years, that progress stalled last year, and that the last three months have moved the wrong way. He also said he is not a fan of trying to steer policy with words alone. Basically, even one of the Fed officials often seen as less hawkish is sounding uneasy about inflation. (livemint.com) ### Why are markets still not pricing hikes? Because the jobs report was solid, not explosive. A stable labor market removes pressure to cut, but it does not automatically create pressure to hike. That is why Treasury yields actually fell after the report. Investors read the numbers as strong enough to support a long hold, but not strong enough to force the Fed into tightening again. (cnbc.com) ### So what is the real takeaway? The story is not “cuts are impossible.” The story is that the bar for cuts just moved much higher. If inflation stays sticky and hiring stays merely okay, the Fed can sit still for a long time. Bank of America just took that logic to its furthest mainstream conclusion — no cuts until the second half of 2027. (livemint.com)
