Fed path still contested

Bank of America is still calling for two Federal Reserve rate cuts in 2026, even after March inflation came in hot and markets turned more cautious. (finance.yahoo.com) In a note published April 11, Bank of America economist Aditya Bhave said the bank still expects cuts this year, with September as the likely turning point. He argued the Federal Reserve will look through supply-driven inflation, see little wage pressure, and respond to softer demand later in 2026. (finance.yahoo.com) That call runs against the Federal Reserve’s own March 17-18 projections. The median policy-rate forecast for the end of 2026 was 3.4 percent, which pointed to one cut from the current 3.50 percent to 3.75 percent range, not two. (federalreserve.gov 1) (federalreserve.gov 2) Inflation has also moved the wrong way for an easy easing case. The Consumer Price Index rose 0.9 percent in March and 3.3 percent from a year earlier, while the Personal Consumption Expenditures price index was up 2.8 percent in February and core Personal Consumption Expenditures was up 3.0 percent. (bls.gov) (bea.gov 1) (bea.gov 2) Bank of America’s case rests on a split inside the data. The Federal Reserve said March job gains had remained low, and the Employment Cost Index showed total compensation for civilian workers up 3.4 percent over the year through the fourth quarter of 2025, a pace the bank reads as limited wage pressure. (federalreserve.gov) (bls.gov) Consumer data are mixed too. Bank of America said real spending rose just 0.1 percent in February on a three-month annualized basis, but the Bureau of Economic Analysis reported nominal personal consumption expenditures up 0.5 percent in February while disposable personal income fell 0.1 percent and the saving rate dropped to 4.0 percent. (finance.yahoo.com) (bea.gov) The leadership question is adding another layer. TradingKey reported April 12 that the White House is increasingly confident Kevin Warsh will become Federal Reserve chair in May, with Kevin Hassett saying confirmation hearings are expected to begin next week. (tradingkey.com) Warsh is widely described in market coverage as more hawkish than Jerome Powell, with more emphasis on inflation control and balance-sheet restraint. TradingKey said that expectation has pushed some investors to delay their rate-cut bets or drop them altogether. (tradingkey.com) The Federal Reserve itself has not committed to either path. Its March statement said uncertainty about the outlook remains elevated, cited the Middle East as a source of risk, and showed one dissent from Governor Stephen Miran, who wanted a quarter-point cut immediately. (federalreserve.gov) The next test is whether inflation cools before the Federal Reserve’s spring data run is complete. If it does not, Bank of America’s September-cut call and the market’s hawkish repricing will keep colliding until the central bank — and possibly a new chair — settles the argument. (bea.gov) (finance.yahoo.com)