Fed unlikely to cut until 2027

Interest rates are turning into a much longer story than investors hoped. Bank of America’s economists now think the Federal Reserve may not cut until the second half of 2027 — not later this year, not next year, but potentially more than a year away. That matters because the Fed sets the baseline price of money in the U.S., and when that baseline stays high, borrowing stays expensive for just about everyone. The shift landed right after the Fed left rates unchanged on April 29 and a fresh jobs report on May 8 showed the labor market still isn’t cracking. ### What changed this week? The big change is the forecast. Bank of America moved to a much more hawkish view, arguing that the Fed now has fewer reasons to cut soon. The immediate backdrop was straightforward — the central bank kept its target range at 3.5% to 3.75%, and the latest labor data did not show the kind of weakness that usually pushes officials toward easier policy. (cbsnews.com) ### Why does one jobs report matter so much? Because the Fed has a dual mandate — stable prices and maximum employment. If inflation is still sticky but hiring is holding up, officials can justify waiting. April payrolls rose by 115,000 and unemployment held at 4.3%, which is softer than boom times but still not recession territory. That weakens the case for an emergency-style pivot to lower rates. (cbsnews.com) ### What is the Fed actually looking for? Basically, the Fed wants clearer proof that inflation is heading back to 2% without the economy overheating again. Its April 29 statement said policymakers will “carefully assess” incoming data before making further adjustments. That is Fed language for: we are not in a hurry. If inflation stays stubborn, cutting too early risks reigniting price growth. (federalreserve.gov) ### Why are economists talking about 2027? Because this is no longer just a “skip one meeting” call. Bank of America is saying the whole easing cycle may be delayed far beyond what markets had been hoping for. Other Wall Street shops had already been pushing expected cuts later — CNBC noted in March that Goldman had shifted its next-cut call to September 2026 from June — but BofA’s new timeline is much more aggressive. (federalreserve.gov) ### Does this mean the economy is strong? Strong-ish, not booming. That is the catch. A labor market can cool without collapsing, and that seems to be where things are now. Health care, transportation and warehousing, and retail added jobs in April, while federal government employment kept falling. So the economy is giving the Fed room to wait, even if households do not feel great about it. (cbsnews.com) ### Who feels “higher for longer” first? Anyone borrowing. Mortgage rates do not move one-for-one with the Fed, but high policy rates keep broad pressure on home loans, car financing, credit cards, and business debt. Companies refinancing old cheap debt get squeezed too. In plain English — money stays expensive, and that slows purchases, hiring, and expansion plans. (bls.gov) ### Could the Fed still cut sooner? Of course. Forecasts are not commitments. If unemployment jumps, spending weakens sharply, or inflation cools faster than expected, the Fed could move earlier. But right now the incoming data are not forcing that hand. That is why the market story has shifted from “when do cuts start?” to “what if they stay away much longer?” (cbsnews.com) ### Bottom line? The new BofA call matters less as a prophecy than as a signal. Wall Street is starting to accept that the Fed may not rescue borrowers anytime soon. If that view keeps spreading, 2026 could look less like a countdown to cheaper money and more like another year of waiting. (cbsnews.com) (federalreserve.gov)