Wall Street Pushes Fed Rate Cuts to Late 2026 on Sticky Inflation

The rate-cut narrative has shifted decisively later along the curve, with two of Wall Street's most influential macro voices now expecting the Fed to hold through the summer and into the fall. Goldman Sachs and Bank of America both cited elevated energy prices and resilient jobs data as the "last straw" for near-term easing. This marks a reversal from late 2025 market pricing, which had front-loaded multiple cuts by mid-2026.

The oil shock from the Iran-Hormuz closure is the immediate catalyst. Energy prices are feeding through to headline inflationThe rate at which prices rise across an economy., and core inflation expectations have not yet rolled over despite the disinflationary effect that higher rates are supposed to deliver. Additionally, both banks flagged that the May jobs report disappointed less than feared, with labor market tightness persisting longer than consensus models predicted. That combination (sticky inflation plus strong employment) has forced forecasters to acknowledge that the Fed's neutral rate may be higher than previously assumed, pushing the "terminal rate" for this cycle further out in time.

Market implications are material. If the first cut is pushed from June 2026 to December 2026 or later, the durationBond price sensitivity to interest rate changes. of high real rates extends sharply, pressuring growth-heavy equities and increasing the discount rate on long-duration assets like growth tech and unprofitable software. Ten-year Treasury yields have ticked up, and the curve has steepened slightly as traders price in fewer total cuts in the cycle. Equity volatility indices have remained muted, but credit spreads are widening gradually as the "higher for longer" narrative settles in.

The debate among macro strategists centers on whether this is a hawkish repricing or a healthy recalibration. Some argue that the oil shock is transitory and that disinflation will re-emerge once energy prices stabilize. Others contend that geopolitical fragmentation, Middle East conflict, potential US-China trade tensions, creates a structural inflationThe rate at which prices rise across an economy. tail that forces the Fed to keep rates higher for longer. The monthly CPI print due May 14 will be a critical test of which narrative wins the near-term.