Bank of America Forecasts No Fed Rate Cuts Until Second Half of 2027

Bank of America predicts the Federal Reserve will delay interest rate cuts until the second half of 2027. The forecast stems from strong inflation and resilient job growth.

Bank of America Global Research had earlier projected two rate cuts this year, in September and October. That outlook rested partly on expectations that Kevin Warsh, President Trump's nominee to succeed Jerome Powell as Fed chair, would push for easier monetary policy.

The bank changed its view as economic conditions shifted.

"We no longer expect the Fed to cut rates this year," the firm's economists wrote Friday in a client note. They pointed to shocks including the Iran war, tariffs and the rise of AI as complicating forecasts for rate moves.

Other analysts agree the Fed will hold rates steady this year. CME Group's FedWatch tool shows less than a 50% chance of cuts until the second half of 2027.

Bank of America Global Research listed several factors delaying cuts. Warsh has indicated openness to lower borrowing costs, but other Fed officials hesitate.

Chicago Fed President Austan Goolsbee and St. Louis Fed President Alberto Musalem recently opposed cuts. They worry AI-driven productivity gains could spur spending and overheat the economy.

Inflation also weighs on the Fed. It stands at 3.3%, well above the 2% target, and has climbed since the Iran war began due to higher energy prices. Rate cuts spur growth but can stoke inflation.

"Core inflation is too high, and moving up," Bank of America Global Research said. The bank sees cuts more likely in the second half of 2027 as inflation eases.

Deutsche Bank economists share that view. They expect consumer prices to stay above 2% for the next year.

"Trend inflation has not shown clear signs of dipping below 3%," they wrote in a May 8 investor note. They cited tariffs and AI-driven costs for computer hardware and software.

A jobs report released Friday further dims prospects for cuts, Bank of America said. Employers added 115,000 jobs in April, beating expectations of 65,000.

With the job market holding firm, Wall Street analysts said Friday the Fed will prioritize inflation control.

The Federal Open Market Committee, a 12-member panel, sets interest rates.