• Bank of America now expects no Federal Reserve rate cuts until the second half of 2027, pushing back from previous forecasts of late 2026.
  • The revision reflects persistent inflation above the 2% target, a strong labor market, and ongoing oil-related price pressures.
  • Higher-for-longer interest rates could weigh on borrowing costs, asset valuations, and economic activity.

Bank of America has sharply revised its outlook for Federal Reserve monetary policy, now forecasting that the central bank will delay rate cuts until mid-2027. The updated projection moves the expected start of easing back from late 2026, according to a research note published Wednesday.

The bank cites a more hawkish tone from Fed officials in recent speeches, along with inflation that continues to run above the 2% target. "The data simply does not yet support the weaker labor market conditions needed to justify earlier easing," the note said. Strong private payroll growth and a stable unemployment rate have reduced the urgency for rate cuts, while elevated oil prices add to inflation risks.

Fed Chair Jerome Powell has repeatedly stressed the need for "greater confidence" that inflation is on a sustainable downward path before cutting rates. The latest consumer price index data, released last week, showed headline inflation edging up to 3.1% year-over-year, driven by energy costs and sticky services inflation.

The revised timeline has immediate implications for investors. Longer-duration bonds could face renewed selling pressure, while equities may struggle as the prospect of cheaper capital fades. Mortgage rates, already hovering near 7%, are unlikely to retreat meaningfully in the near term, putting further strain on housing affordability.

Other major financial institutions have also pushed back their rate-cut forecasts in recent weeks. JPMorgan Chase now sees the first cut in early 2027, while Goldman Sachs expects a move later this year but with considerable uncertainty. The divergence reflects the challenge of forecasting in an environment where inflation remains stubbornly above target even as the labor market shows signs of gradual cooling.

Bank of America's analysis emphasizes that the path forward depends on incoming data. If inflation does not show sustained improvement, the Fed could hold rates steady through 2027 or even consider further hikes. "The bar for cutting rates is very high right now," the note concluded.

Correction: An earlier version of this article misstated the date of the Fed's last rate move. The Fed hiked rates to a range of 5.25%-5.50% in July 2023 and has held steady since.