Wall Street Pushes Fed Rate Cuts Into Late 2026

A growing consensus among major Wall Street banks is emerging that the Federal Reserve will remain on hold well into the second half of 2026. Goldman Sachs and Bank of America, two of the largest global investment banks, have both recently pushed back their forecasts for the first rate cut, with Goldman now expecting cuts no earlier than December 2026 and possibly March 2027. The driver is not weakness in the labor market or deflationary pressures; rather, it is the combination of elevated energy prices stemming from the Hormuz closure and what both firms describe as stubbornly resilient inflationThe rate at which prices rise across an economy. expectations.

The Conference Board Employment Trends Index increased to 105.77 in April from a downwardly revised 105.52 in March, suggesting labor demand remains solid despite broader economic uncertainty. Meanwhile, crude oil prices are near $86 per barrel, and the 100 million barrels per week lost to the Hormuz closure represents a structural supply shock that central banks are reluctant to dismiss as transitory. Morgan Stanley's global head of macro strategy signaled expectations for a 'spicier' US inflationThe rate at which prices rise across an economy. report in the coming week, underscoring the hawkish inflation narrative.

Implications cut across markets: A prolonged period of higher rates crimps the multiple expansion that has driven equity gains, especially for growth and unprofitable tech names. DurationBond price sensitivity to interest rate changes. in fixed income faces further pressure. The US dollar benefits from a higher rate differential, which supports DXYThe US Dollar Index — trade-weighted USD against EUR, JPY, GBP, CAD, SEK, CHF. and weighs on emerging market currencies. Equities tied to capital-intensive industries or sectors sensitive to borrowing costs (real estate, small-cap equities, high-yield debt) face headwinds. However, financial institutions and banks benefit from wider net interest margins in a higher-rate environment.

The skeptical case argues that inflationThe rate at which prices rise across an economy. will eventually moderate as base effects ease and demand destruction from higher rates takes hold. Some traders are betting that the Hormuz closure will be resolved faster than the market currently prices in, creating a repricing opportunity. Others contend that the Fed may pivot sooner if recession risks crystallize.