Fed cuts expectations recede

The Fed story changed again this week — and not in the direction borrowers wanted. Instead of moving closer to rate cuts, Wall Street moved further away from them after a still-steady April jobs report, sticky inflation, and a fresh warning from the Fed that oil and tariffs are keeping price pressure alive. Then Bank of America pushed the idea to its logical extreme: no cuts until the second half of 2027. That is a long time to tell markets, homebuyers, and businesses to keep waiting. ### Why did this snap back? Because the economy still is not weak enough to force the Fed’s hand. April payrolls rose by 115,000, which was slower than March’s 185,000 but still well above the very low forecasts going into the report, and unemployment stayed at 4.3%. Wage growth also cooled a bit, but not enough to suddenly make inflation look solved. ### What did the Fed just say? At the April 29 meeting, the Fed left rates unchanged at 3.5% to 3.75%. Jerome Powell said inflation has moved up and is elevated, with higher global energy prices adding pressure. He also pointed to tariffs feeding goods inflation. That matters because it tells you the Fed is not just worried about one-off noise — it sees multiple forces keeping prices sticky. (cnbc.com) ### Why do oil and tariffs matter so much? They hit inflation from different directions. Oil raises transportation, manufacturing, and household energy costs fast. Tariffs work more slowly, but they push up the price of imported goods and parts. Basically, even if labor-market heat is easing, those two forces can keep headline inflation uncomfortable enough that the Fed does not want to cut early. (federalreserve.gov) ### So what did Bank of America actually change? It moved from a delayed-cuts view to an almost no-cuts view. The bank said on May 8 that a more hawkish Fed and stubborn inflation now make the second half of 2027 the likely starting point for easing. That is much more aggressive than the market mood just a few months ago, when investors still thought 2026 would bring meaningful relief. (federalreserve.gov) ### Are traders buying that? They are not fully at the Bank of America endpoint, but they are clearly backing away from near-term cuts. CME’s FedWatch tool shows the next meeting in June is overwhelmingly priced for no change, which tells you the market has largely given up on an imminent move. The old idea that the Fed would cut quickly at the first sign of softer growth looks much weaker now. (cbsnews.com) ### Does the jobs report really look strong? Strong is maybe too neat a word. It looked resilient, not booming. Payroll growth beat expectations, but hiring is still modest, the labor force shrank again, and the broader tone is a labor market that is stable without much momentum. The catch is that stability is enough to keep the Fed waiting if inflation is still above target. (cmegroup.com) ### Why does this matter outside markets? Because every delayed cut keeps borrowing costs higher for longer. Mortgages, credit cards, auto loans, and business financing do not all move one-for-one with the fed funds rate, but they all care about the same basic message: money is not getting cheaper soon. That also raises the political temperature, since the White House can want lower rates while its own tariff agenda makes inflation harder to tame. (cnbc.com) ### Bottom line The new message is simple — the Fed does not see enough weakness to rescue borrowers, and inflation still has too many live wires. Until one of those changes, rate cuts stay a story for later. (federalreserve.gov)