Bank of America Now Sees No Fed Rate Cuts Until Second Half of 2027

The Federal Reserve is unlikely to cut interest rates until the second half of 2027, according to a revised forecast from Bank of America Global Research. The new projection marks a sharp reversal from the bank’s earlier outlook, which had anticipated two rate cuts this year.

Why the forecast changed

Bank of America economists had previously expected rate reductions in September and October 2025. That forecast was partly based on the assumption that Kevin Warsh, President Trump’s nominee to succeed Jerome Powell as Fed Chair, would push the central bank toward a more accommodative monetary policy. However, persistent inflation and robust employment growth have shifted the economic landscape.

In a note to clients, BofA analysts stated they no longer expect any rate cuts this year. They pointed to a series of complex economic shocks that are clouding the outlook for monetary policy. These include ongoing geopolitical tensions, such as the conflict involving Iran, the imposition of new tariffs, and the rapid expansion of artificial intelligence, which is reshaping labor markets and productivity metrics.

Implications for investors and the broader economy

The revised timeline has significant implications for financial markets. Investors who had priced in near-term rate cuts may need to adjust their expectations. Higher-for-longer interest rates typically pressure growth stocks, increase borrowing costs for businesses and consumers, and strengthen the U.S. dollar.

For households, the delay means mortgage rates, credit card APRs, and auto loan rates are likely to remain elevated for an extended period. This could dampen consumer spending, which has been a key driver of economic growth.

What this means for the Fed’s credibility

The forecast also raises questions about the Fed’s communication strategy. The central bank has repeatedly signaled caution, but markets have often priced in earlier cuts. If BofA’s timeline proves accurate, it would underscore the difficulty of predicting the Fed’s path in an environment of overlapping economic disruptions.

Context: A history of shifting forecasts

Bank of America is not alone in revising its outlook. Several major financial institutions have walked back rate cut predictions over the past year as inflation has proven stickier than anticipated. The Fed itself has maintained a data-dependent stance, emphasizing that it needs to see sustained progress on inflation before easing policy.

The last time the Fed cut rates was in July 2023, when it lowered the federal funds rate by 25 basis points. Since then, the central bank has held rates steady, waiting for clearer signs that inflation is moving sustainably toward its 2% target.

Conclusion

Bank of America’s revised forecast reflects a growing consensus that the Federal Reserve will remain cautious for the foreseeable future. With inflation still above target and employment remaining strong, the path to rate cuts appears longer than many had hoped. For now, the message from economists is clear: patience remains the operative word in monetary policy.

FAQs

Q1: When does Bank of America now expect the first Fed rate cut?
A: Bank of America projects the first rate cut will occur in the second half of 2027, later than its previous forecast of 2025.

Q2: Why did Bank of America change its forecast?
A: The revision is due to persistent inflation, strong employment growth, and complex economic shocks including geopolitical tensions, tariffs, and the rise of artificial intelligence.

Q3: How might this affect mortgage rates?
A: If the Fed delays rate cuts, mortgage rates are likely to remain elevated, increasing borrowing costs for homebuyers and potentially cooling the housing market.