Bank of America Global Research has pushed its forecast for the first Federal Reserve interest-rate cut to July 2027 [1].
This shift signals a significant change in expectations for U.S. monetary policy, suggesting that borrowing costs will remain high for much longer than previously anticipated. The delay reflects growing concerns that inflation is more stubborn than the Federal Reserve's target.
According to the research, the bank now expects a second rate cut to follow in September 2027 [1]. The revised outlook also indicates the possibility of future rate hikes if economic conditions do not stabilize. These projections were detailed in a report published May 11 [2].
Analysts said the delay was due to elevated inflation driven by high energy prices, which are linked to the war in Iran [2]. The bank also said a labor market that remains strong provides the Federal Reserve with more room to maintain high rates without triggering an immediate economic collapse.
There are some discrepancies regarding the timing of these shifts. While some reports suggest the bank still anticipates cuts within 2026, the primary research data indicates the timeline has moved firmly into the following year [1, 2]. This tension highlights the volatility of market predictions during geopolitical instability.
High energy costs continue to act as a primary catalyst for inflation, complicating the central bank's effort to lower prices. By pushing the timeline to mid-2027, Bank of America suggests that the current cycle of restrictive policy is far from over.
“Bank of America Global Research has pushed its forecast for the first Federal Reserve interest-rate cut to July 2027.”
This forecast suggests a 'higher-for-longer' interest rate environment that could pressure consumers and businesses through the end of 2026. By linking the delay to the war in Iran and energy costs, Bank of America underscores how geopolitical volatility can override domestic economic data, potentially forcing the Federal Reserve to prioritize inflation control over economic growth for an extended period.
