Bank of America and Goldman Sachs both postponed their expectations for a Federal Reserve rate cut, with energy and employment data becoming key constraints.
2026-05-11 17:03:46
On Monday (May 11), Bank of America Global Research and Goldman Sachs became the latest two investment banks to revise their forecasts for Federal Reserve interest rates, citing persistently high inflation due to rising energy prices and a continued strengthening labor market as reasons for postponing the timetable for rate cuts.
Bank of America Global Research currently expects the Federal Reserve to keep interest rates unchanged for the remainder of 2026, before cutting rates by 25 basis points each in July and September 2027.
Goldman Sachs has postponed its expectation for the first rate cut from September 2026 to December 2026, and anticipates another rate cut in March 2027. Previously, Goldman Sachs had predicted the first rate cut would be in September 2026.
As the ten-week-long Middle East war pushes up energy prices, policymakers remain wary of inflation risks, and several global investment banks have readjusted their forecasts for a US interest rate cut in 2026, with opinions divided between "partial easing" and "no cuts at all".
Data released last Friday showed that U.S. job growth in April exceeded expectations, and the unemployment rate remained stable at 4.3%, further reinforcing market expectations that the Federal Reserve will keep interest rates unchanged for an extended period.
"If the labor market fails to weaken sufficiently this year, we expect the Federal Open Market Committee to cut rates for the last two times in 2027," Goldman Sachs analysts wrote in a report on May 8.
The Federal Reserve held its April 29 meeting with an unusually split vote of 8-4 to keep interest rates unchanged, the closest vote since 1992. U.S. inflation remains well above the Fed’s 2% target.
Traders currently expect the central bank to keep interest rates unchanged in the 3.50%-3.75% range until the end of the year.
In a report dated May 8, Bank of America analysts stated, "We believe that (the incoming Fed Chair) Warsh will push for rate cuts, but current data does not allow for them. However, by next summer, as inflation gets closer to the target level, rate cuts should become possible."
In summary, rising energy costs stemming from the Middle East conflict and a persistently strong labor market have become the two main obstacles for the Federal Reserve to ease monetary policy. The recent moves by Bank of America and Goldman Sachs to postpone their rate cut forecasts reflect the market's repricing of a "higher and longer" interest rate environment. Traders currently expect no rate cuts throughout 2026, with 2027 becoming a crucial window for policy shifts. Going forward, the trajectory of oil prices, the pace of the cooling job market, and the evolution of inflation data will collectively determine whether the Fed can begin its rate-cutting cycle as scheduled in 2027.
In the short term, the US dollar is expected to maintain a relatively strong trend. The next target for the US dollar index is the 100 level. However, any signals of a ceasefire in the Middle East could trigger a temporary pullback in the US dollar.
I. Latest forecasts from two major investment banks: A comprehensive postponement of the interest rate cut timetable.
Bank of America Global Research currently expects the Federal Reserve to keep interest rates unchanged for the remainder of 2026, before cutting rates by 25 basis points each in July and September 2027.
Goldman Sachs has postponed its expectation for the first rate cut from September 2026 to December 2026, and anticipates another rate cut in March 2027. Previously, Goldman Sachs had predicted the first rate cut would be in September 2026.
II. Market Background: Middle East wars drive up energy prices; investment banks hold divergent views.
As the ten-week-long Middle East war pushes up energy prices, policymakers remain wary of inflation risks, and several global investment banks have readjusted their forecasts for a US interest rate cut in 2026, with opinions divided between "partial easing" and "no cuts at all".
III. Supported by economic data: A strong job market reinforces expectations of no change in policy.
Data released last Friday showed that U.S. job growth in April exceeded expectations, and the unemployment rate remained stable at 4.3%, further reinforcing market expectations that the Federal Reserve will keep interest rates unchanged for an extended period.
"If the labor market fails to weaken sufficiently this year, we expect the Federal Open Market Committee to cut rates for the last two times in 2027," Goldman Sachs analysts wrote in a report on May 8.
IV. Within the Federal Reserve: Significant divisions at the April meeting, inflation still well above target.
The Federal Reserve held its April 29 meeting with an unusually split vote of 8-4 to keep interest rates unchanged, the closest vote since 1992. U.S. inflation remains well above the Fed’s 2% target.
Traders currently expect the central bank to keep interest rates unchanged in the 3.50%-3.75% range until the end of the year.
V. Bank of America Outlook: Warsh may push for a rate cut, but the data doesn't yet allow it.
In a report dated May 8, Bank of America analysts stated, "We believe that (the incoming Fed Chair) Warsh will push for rate cuts, but current data does not allow for them. However, by next summer, as inflation gets closer to the target level, rate cuts should become possible."
In summary, rising energy costs stemming from the Middle East conflict and a persistently strong labor market have become the two main obstacles for the Federal Reserve to ease monetary policy. The recent moves by Bank of America and Goldman Sachs to postpone their rate cut forecasts reflect the market's repricing of a "higher and longer" interest rate environment. Traders currently expect no rate cuts throughout 2026, with 2027 becoming a crucial window for policy shifts. Going forward, the trajectory of oil prices, the pace of the cooling job market, and the evolution of inflation data will collectively determine whether the Fed can begin its rate-cutting cycle as scheduled in 2027.
In the short term, the US dollar is expected to maintain a relatively strong trend. The next target for the US dollar index is the 100 level. However, any signals of a ceasefire in the Middle East could trigger a temporary pullback in the US dollar.
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