Goldman, BofA push Fed rate-cut timing back amid inflation persistence

The consensus view among major Wall Street firms is shifting hawkish as inflationThe rate at which prices rise across an economy. dynamics persist beyond expectations. Goldman Sachs and Bank of America have both pushed their first Federal Reserve rate-cut forecasts further into the future, with Goldman moving its call from June to a later date and BofA citing both jobs data resilience and energy-driven inflation. The shift reflects a broadening recognition that the Fed's inflation fight is not yet complete and that central banks globally face persistent supply-side shocks that defy traditional monetary policy remedies.

The macroeconomic backdrop supports this reassessment. Jobs data, while showing some resilience, remains strong enough to keep inflationThe rate at which prices rise across an economy. expectations unanchored. The Strait of Hormuz closure is adding energy inflation that will take months to work through the system. UK gilt yields have spiked amid pressure on Prime Minister Keir Starmer following local election losses, and global central banks are reassessing the timing and magnitude of rate cuts. Aberdeen Senior Research Economist Sree Kochugovindan noted that inflation expectations remain anchored for now, but BOE, ECB, and Fed rate-cut timelines remain in wait-and-see mode.

The implications for asset allocation are stark. Bond yields have risen on the back of delayed rate-cut expectations, pressuring long-durationBond price sensitivity to interest rate changes. equities and growth stocks that benefit from lower discount rates. The impact is asymmetric: value stocks and cyclicals that benefit from higher rates are outperforming, while mega-cap growth and unprofitable technology names are underperforming. Real estate, particularly leveraged REIT positions, is under pressure. Conversely, financial stocks like JPMorgan and BofA are benefiting from a steeper yield curvePlot of bond yields across maturities. and higher net interest margins.

The debate centers on whether this is a temporary reprieve for rate cuts or a sign that the Fed will remain restrictive longer than markets have priced in. If inflationThe rate at which prices rise across an economy. remains stubborn through Q3, the risk of a further delay or even a rate hike becomes material. However, if energy prices stabilize and labor markets begin to cool, the narrative could flip back to rate-cut enthusiasm by Q4, creating significant volatility for long-durationBond price sensitivity to interest rate changes. asset prices.