Goldman, BofA Push Fed Rate Cut Forecasts Further Out

Goldman Sachs and Bank of America joined a growing chorus of Wall Street banks pushing back their forecasts for Federal Reserve interest-rate cuts following "last straw" jobs data released on Friday. Both firms now expect the first cut in December 2026 at the earliest, a major shift from earlier projections that had priced in cuts as soon as June. This repricing has broad implications for the carry tradeBorrowing in a low-yielding currency to invest in a higher-yielding one, pocketing the rate differential., Treasury yields, the USD, and equity multiples, particularly for high-growth and rate-sensitive sectors.

The pivot reflects two converging pressures: first, labor-market resilience that defies recession narratives and inflationThe rate at which prices rise across an economy.-reduction expectations; second, energy and commodity price shocks from the Iran conflict that are raising near-term inflation prints. Morgan Stanley's Matt Hornbach flagged Monday's US CPI data as potentially "spicier" than markets are pricing, and an April inflation surprise could cement the "higher for longer" interest-rate regime. The Conference Board Employment Trends Index rose to 105.77 in April, underscoring labor-market tightness.

The cross-asset impact is significant: higher real yields pressure gold and growth equities; a strong dollar weighs on emerging markets; mortgage rates stay elevated, slowing real estate; and equity multiples contract as terminal rate expectations rise. Sceptics note that one strong jobs print does not negate structural labor-market softening or the lagged impact of prior tightening. However, the consensus shift suggests the Fed has credibility on inflationThe rate at which prices rise across an economy. vigilance, which could support rate-sensitive defensives like staples and utilities while pressuring high-multiple AI and growth plays in the near term.