Major Wall Street brokerages are turning more cautious on the timing of U.S. Federal Reserve rate cuts, as persistent inflationary pressures from elevated energy prices and a resilient labour market complicate the outlook for monetary easing.
According to Reuters, both BofA Global Research and Goldman Sachs have pushed back their expectations for when the U.S. central bank could begin lowering interest rates.
BofA Global Research now expects the Federal Reserve to keep rates unchanged for the remainder of 2026, projecting two quarter-point cuts only in July and September 2027. Goldman Sachs, meanwhile, has shifted its forecast to rate cuts in December 2026 and March 2027, compared with its earlier expectation of an initial cut in September 2026.
The revised outlook reflects growing concern among economists and investors that the ongoing Middle East conflict, now in its 10th week, could keep energy prices elevated and contribute to global inflationary pressures. Rising oil prices have made policymakers increasingly wary about easing monetary policy too soon.
Recent economic data has also reinforced the case for patience. U.S. employment growth in April exceeded expectations, while the unemployment rate remained steady at 4.3%, signalling continued resilience in the labour market.
The Federal Reserve held interest rates steady at its April 29 policy meeting in a sharply divided 8-4 decision, marking the closest vote split since 1992. Inflation in the United States continues to remain above the Fed’s long-term 2% target, adding to the central bank’s policy dilemma.
Market participants currently expect the Fed to maintain rates in the 3.50% to 3.75% range through the end of the year, according to Reuters.
Goldman Sachs analysts noted in a May 8 report that if labour market conditions remain firm, policymakers may defer further easing until 2027. Separately, BofA analysts said expectations of future rate cuts could also depend on the policy stance of incoming Fed leadership, though current economic data does not yet justify easing.
The shifting forecasts underscore how inflation risks tied to geopolitical tensions and strong domestic demand are reshaping expectations for the U.S. interest-rate cycle.
