• Bank of America maintains its call for two Federal Reserve rate cuts in 2026, arguing the central bank will look past supply-driven inflation, weak wage pressure, and rising political influence.
  • Recent Fed minutes highlight a cautious stance: some officials have delayed expected cuts or even floated hikes, while many still see eventual rate reductions as appropriate.
  • Real consumer spending rose just 0.1% in February, with inflation (PCE) at 4.1%, suggesting economic headwinds that could support easing later this year.

Bank of America, the largest U.S. bank by assets, continues to forecast two Federal Reserve rate cuts in 2026, according to people familiar with the matter. The bank argues the Fed will look through supply-driven inflation, limited wage pressure, and political dynamics to ease later in the year, reflecting a data-dependent view that revisions showing slightly slower growth and somewhat higher near-term inflation do not derail the expected easing path.

Economist Aditya Bhave noted recent revisions show slightly slower growth and higher inflation, but not enough to change the outlook: cuts are still expected this year. BofA adds that by September, incoming Fed Chair Kevin Warsh could have enough evidence of cooling inflation to support easing—though risks still lean toward no cuts.

Fed communications in recent minutes indicate a cautious stance among officials. Some officials considered delaying cuts or even signaling the possibility of hikes, while a substantial share still viewed eventual rate reductions as appropriate. Market observers note a bias toward gradual, data-driven easing rather than abrupt policy shifts, with the narrative hinging on growth slowing modestly while inflation remains above target, allowing for a measured path.

On consumers, spending is weakening. Real spending rose just 0.1% in February, with a modest 0.8% annualized pace over three months. Meanwhile, inflation (PCE) ran at 4.1%, and higher energy prices may continue to squeeze demand. For borrowers and investors, rate cuts tend to lower loan costs and support housing and business investment, though the effect depends on the trajectory of inflation and financial conditions.

The discourse around Fed policy is influenced by broader political dynamics, including fiscal-monetary balance, tariffs, and regulatory signals, which can affect inflation pressures and the Fed's flexibility to ease. Efforts to manage inflation without triggering a recession have hit a snag, as recent data shows persistent price pressures amid softening growth.

Without a deal on inflation cooling, the Fed might be forced into a more hawkish stance, but BoA's outlook suggests a gradual normalization. The bank's 2025–2026 outlook centered on improved efficiency and steady loan growth but with ongoing sensitivity to credit quality and macro conditions; it has maintained a cautiously optimistic stance on asset sensitivity and capital strength.

In related developments, other institutions have also revised forecasts in light of incoming data, creating a converging view on a modest easing path despite near-term inflation persistence. The consensus among several large banks and research shops points to gradual policy normalization in 2026, with the pace and persistence of cuts contingent on inflation dynamics and wage growth.

Correction: An earlier version misstated the timing of potential Fed cuts; they are projected for 2026, not 2025.