economy
Fed unlikely to cut interest rates until second half of 2027, Bank of America says
Bank of America predicts the Federal Reserve will delay lowering interest rates until the second half of 2027, mainly due to strong inflation and resilient job growth.
TL;DR
- Bank of America predicts Federal Reserve interest rate cuts will be delayed until the second half of 2027.
- The delay is attributed to strong inflation and resilient job growth.
- Previous expectations of rate cuts in September and October 2024 have been withdrawn.
- Several economic shocks, including the Iran war, tariffs, and AI, are making forecasting difficult.
- Market sentiment, as measured by CME Group's FedWatch tool, also suggests a low probability of rate cuts before mid-2027.
- Some Fed officials are hesitant to ease monetary policy due to concerns about AI-driven productivity gains potentially overheating the economy.
- Inflation remains above the Fed's 2% annual target, with core inflation showing an upward trend.
- A stronger-than-expected jobs report for April further weakens the case for immediate rate cuts.
- The Federal Open Market Committee (FOMC) is responsible for deciding on interest rate changes.
- The last rate cut occurred in December 2025, and the federal funds rate has been between 3.5% and 3.75% since then.