Wall Street delays Fed rate cuts to late 2026 on sticky inflation

The Fed rate-cut narrative has undergone a sharp reversal over the past 48 hours as Goldman Sachs and Bank of America joined a growing chorus of Wall Street strategists pushing back their forecasts for interest-rate cuts. Goldman specifically moved its first-cut call from June to December 2026, citing elevated energy prices from the 10-week Mideast conflict and the risk that inflationThe rate at which prices rise across an economy. remains sticky through the summer. BofA echoed similar reasoning, flagging the strength of labor-market data (Conference Board Employment Trends Index at 105.77 in April) and the lack of convincing evidence that inflation is trending toward the Fed's 2% target.

The repricing reflects a tectonic shift in market consensus. Just six weeks ago, many traders were pricing in the possibility of cuts as soon as March 2026; now the consensus has compressed into a later window. Morgan Stanley expects this week's CPI print to be spicier, and the Fed's own commentary has shifted toward hawkishness. Fed Chair Powell and other central bankers are in wait-and-see mode, holding policy steady despite softening data in some categories. The bond market has repriced durationBond price sensitivity to interest rate changes. risk, with 10-year yields holding elevated and the front end of the curve steepening slightly as traders accept a higher terminal rate.

Implications ripple across asset classes. Equities are re-rating growth expectations downward as the cost of capital remains elevated for longer. Real Estate (REITs) and dividend stocks face valuation pressure from durationBond price sensitivity to interest rate changes.-adjusted discount rates. Banks benefit from wider net interest margins, but the delayed-rate-cut narrative also suggests recession risk if capex and consumer spending cool before fiscal support kicks in. India, China and other emerging markets are adjusting policy stance, with central banks warning of imported inflationThe rate at which prices rise across an economy. that could force them to maintain tighter policy even as developed economies stay on hold.

Some analysts argue that energy prices could fall sharply if the Middle East situation stabilizes, allowing the Fed to cut sooner. Others contend that the labor market's durability proves the Fed's 2% target is not credible and that inflationThe rate at which prices rise across an economy. expectations could de-anchor if oil prices stay elevated. Congressional debates around tariffs, oil export bans and fiscal stimulus add further uncertainty about the near-term inflation trajectory.