Wall Street pushes back Fed rate-cut forecasts on stubborn labor

The consensus on Fed policy is shifting visibly this week. Goldman Sachs and Bank of America, two of Wall Street's most influential policy commentators, have both delayed their forecasts for the first interest-rate cut, arguing that recent labor-market data contradicts the case for near-term easing. Goldman previously flagged June as a potential cut window; that has now slid to December 2026. Bank of America cited jobs and inflationThe rate at which prices rise across an economy. print strength as 'the last straw' that makes a near-term pivot untenable.

This shift matters because it undermines a key pillar of the equity rally. The S&P 500 is trading at all-time highs and has been powered in part by expectations of a 'Fed pivot' in mid-2026. If rate cuts are now pushed back to year-end or 2027, the earnings growth narrative must stand on its own, without the boost from multiple expansion from falling discount rates. The bond market is already pricing this in; long-dated yields have risen sharply as traders repriced their carryIncome earned from holding a position over time. and curve expectations. Treasury curves have steepened, and front-end rates have held firm despite earlier-in-the-cycle soft economic data.

Central banks globally are facing the same quandary: China's PBOC has warned of imported inflationThe rate at which prices rise across an economy. risks; the Bank of England and ECB are both in wait-and-see mode, with Aberdeen strategists noting that inflation expectations remain anchored but headline inflation surprises keep pushing toward the upside due to geopolitical commodity shocks. The Strait of Hormuz closure, in particular, has reset near-term inflation expectations higher across energy-importing blocs.

Counter-arguments focus on the lag between policy expectations and actual economic data. Some strategists note that labor-market leads have already rolled over in certain cohorts (hours worked, temp hiring), suggesting the jobs strength may be transitory. However, until that data shows up in official prints, the Fed cannot begin cutting, and the Bank of America and Goldman forecasts reflect that reality.