Goldman, BofA push Fed rate-cut forecasts to later in 2026

Goldman Sachs and Bank of America have joined a growing consensus shifting Fed rate-cut expectations deeper into 2026, citing 'persistent' inflationThe rate at which prices rise across an economy. and robust jobs data as reasons to hold policy steady longer. Both firms cited last week's employment figures as a 'last straw' for near-term cuts, suggesting the Fed will remain on hold through at least June or Q3 before reconsidering. This marks a significant shift from earlier expectations of cuts as early as spring, and reflects the durability of inflation despite cooling energy volatility in prior months.

The inflationThe rate at which prices rise across an economy. narrative is being amplified by the Hormuz closure and renewed oil price strength. Core inflation expectations have re-anchored higher in medium-term surveys, and the term premium in long-durationBond price sensitivity to interest rate changes. bonds has widened. The 10-year Treasury yield is rising, pressuring equities with high duration risk. Meanwhile, central bank messaging from the BOE, ECB, and Fed itself remains cautious, with officials flagging supply-side shocks (geopolitics, disruption) as a reason to stand pat rather than pre-emptively cut.

The implications for equity valuations are significant. High-multiple, lower-earnings-yield sectors that benefit from lower rates, such as unprofitable growth tech and speculative crypto, face headwinds if rates stay elevated. However, the NVIDIA/AI capex narrative may inoculate select tech names against this repricing, as their earnings growth is seen as sufficient to justify valuations even in a 'higher rates' regime. Conversely, banks and financials rally on higher net-interest margins, and commodities benefit from inflationThe rate at which prices rise across an economy. protection demand.

Market pricing now reflects terminal Fed funds rateThe overnight rate at which U.S. banks lend reserves to each other. around 4.5-5%, significantly higher than prior 3.5-4% expectations. A CPI print on May 13 that beats estimates could accelerate the sell-off in long bonds and equities; a miss could offer temporary relief. Trump's push to lower commodity import tariffs (beef) suggests some recognition of inflationThe rate at which prices rise across an economy.'s political costs, but it's insufficient to override the structural oil shock.