Goldman, BofA delay Fed rate-cut calls after hot jobs data

Goldman Sachs and Bank of America have joined a growing cohort of Wall Street banks in delaying their forecasts for Federal Reserve interest-rate cuts, citing stubborn jobs and inflationThe rate at which prices rise across an economy. data that undermine the case for near-term relief. The moves represent a significant hawkish pivot from earlier 2026 consensus that expected cuts by June or summer. Both firms now expect the first cut to arrive later in the year, if at all, as labor market resilience and imported inflation from the Iran war oil shock cloud the outlook. Morgan Stanley's global head of macro strategy, Matt Hornbach, is bracing for a "spicier" US inflation print this week, hinting that CPI data could surprise to the upside and cement a longer-durationBond price sensitivity to interest rate changes. higher-rates regime.

The delay in rate-cut expectations is already rippling through equities and fixed income. Bond yields have climbed, with UK gilts particularly pressured by domestic political uncertainty surrounding Prime Minister Keir Starmer's leadership combined with international inflationThe rate at which prices rise across an economy. worries. JPMorgan's mid-year outlook explicitly flagged the Hormuz closure as a structural reorientation that will persist, meaning energy costs remain elevated longer than previously modeled. The Bank of England's Megan Greene signaled that supply-side shocks require a different policy response than demand-driven inflation; central banks lack tools to address supply constraints, but rate hikes can still manage demand. The implication is that central banks may be forced to tighten into a stagflation scenario, a nightmare for equity valuations.

Dealers have surged gammaThe rate of change of delta - the option's curvature. exposure to historic highs, a sign that call-skew dominated positioning has reached extremes. Everyone is piled into upside calls as S&P call skew hits record highs while put skew collapses near historic lows. Markets are screaming "melt up" with traders chasing upside and barely hedging downside risk. If the CPI print disappoints Wednesday, and if the Fed signals a more hawkish stance, equity positioning could unwind violently. Technology and high-multiple growth names are especially vulnerable, as they are most sensitive to durationBond price sensitivity to interest rate changes. (long-dated cash flow discount rates). The US stock market concentration has reached unprecedented levels, meaning a tech correction could cascade into broader market losses.

The base case for the next two weeks hinges on whether Wednesday's US CPI surprises hot or aligns with expectations. If inflationThe rate at which prices rise across an economy. is hotter than expected, expect a sharp selloff in equities and a rally in real yields and the US dollar. If CPI aligns with consensus (3.7 percent year-over-year, above the Fed's 2 percent target), expect a modest relief bounce but continued pressure on growth-sensitive valuations. A key wildcard is whether the Trump-Xi summit produces any trade-war relief that could lower inflation expectations, but such an outcome seems increasingly unlikely given the firmness of both negotiating positions.