BofA sees two Fed cuts

Bank of America is telling clients the Federal Reserve will cut interest rates twice in 2026, even though Federal Reserve officials projected only one cut in their March 18, 2026 forecasts. Bank of America’s published 2026 outlook put those cuts in June and July. (bankofamerica.com, federalreserve.gov) The Federal Reserve’s benchmark rate is the price of overnight money for banks, and it ripples outward into Treasury yields, mortgages, auto loans, and corporate borrowing. On March 18, 2026, the central bank kept that target range at 3.50% to 3.75%. (federalreserve.gov, fred.stlouisfed.org) A “cut” here means 25 basis points, which is one quarter of one percentage point. Two cuts would usually lower the target range by 0.50 percentage point, taking it from 3.50%-3.75% to roughly 3.00%-3.25%. (bankofamerica.com, federalreserve.gov) That forecast matters because bond traders do not wait for the Federal Reserve to move; they buy and sell based on what they think the next move will be. If enough investors believe Bank of America, yields on shorter-dated Treasuries can fall before any official rate cut happens. (cnbc.com, rateprobability.com) The market is not fully lined up with Bank of America yet. As of April 5, 2026, one market-based tracker showed the implied federal funds midpoint near 3.06% by December 2026, which is lower than today but spread across many meetings rather than a clean June-and-July path. (rateprobability.com) The gap between the Federal Reserve’s own forecast and Bank of America’s call is the trade. If inflation stays sticky, the central bank can hold rates higher for longer; if growth or hiring weakens, the June and July cuts Bank of America expects start to look more plausible. (federalreserve.gov, finance.yahoo.com) That is why fixed-income desks care about “duration,” which is just a bond’s sensitivity to rate changes. Longer-duration bonds usually gain more when rates fall, the same way a long seesaw moves more at the far end than near the middle. (bankofamerica.com, federalreserve.gov) They also care about the “curve,” which is the line connecting short-term and long-term interest rates. If traders start expecting earlier Federal Reserve cuts, short-term yields often fall faster than long-term yields, and that changes which curve trades make money. (fred.stlouisfed.org, cnbc.com) Another piece is “carry,” which is the income from holding a bond or rate position over time. Carry can look attractive when rates are steady, but it can disappear quickly if traders are positioned for cuts that do not arrive on schedule. (rateprobability.com, federalreserve.gov) So this call is less about one bank making a prediction and more about whether the rest of Wall Street starts treating that prediction as the base case. If they do, the first move will show up in futures and Treasury pricing long before Jerome Powell announces anything at a lectern. (bankofamerica.com, cnbc.com)