Federal Reserve Watch: Pushing Cuts Out to 2H 2027

BofA Securities has pushed back its expectation for the first Federal Reserve rate cuts to the second half of 2027 due to sticky core inflation and a stable labor market. Despite a potentially dovish incoming chair, the firm notes that fat tails in the policy distribution include a 15-20% chance of future hikes.

Key Takeaways

• 1.BofA has delayed its forecast for the first Fed rate cuts from Sep-Oct 2026 to July-September 2027.
• 2.The expected terminal rate remains unchanged at 3.0-3.25%.
• 3.Persistent core inflation (3.2% in March) and a resilient labor market (86k private payroll average) prevent near-term easing.

Table of Contents

• No mas
• What took us so long?
• Why change now? The Fed's tone has shifted...
• ...Inflation is inexcusable, and the labor market is stable
• Still, our conviction remains low
• The tails are fat
• What would it take for the Fed to hike?
• Disclosures

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