Goldman and BofA Push Back Fed Cut Forecasts on Persistent Jobs, Inflation

The consensus on interest-rate cuts is crumbling. Goldman Sachs and Bank of America, two of Wall Street's most influential strategists, have joined a growing cohort pushing back their forecasts for first-cut timing, arguing that recent jobs data and inflationThe rate at which prices rise across an economy. resilience have made a near-term pivot unlikely. The so-called "last straw" jobs print evidently convinced both firms that the Fed will hold rates steady longer than previously priced. This shift is forcing traders to reprice rate-cut probabilities, with curve expectations now reflecting no material cut probability until late 2026 at earliest.

The macro backdrop is indeed sticky. US CPI data is due this week, and the street is anxious; prior prints have come in hotter than expected, leaving the Fed with limited cover to pivot dovish. JPMorgan's strategists flagged that inflationThe rate at which prices rise across an economy. will stay "persistently higher," citing geopolitical supply shocks (Strait of Hormuz closure), wage growth momentumThe empirical fact that winners keep winning over the medium term., and re-reflation from fiscal spending. India is weighing emergency forex measures and fuel-price hikes, which will further anchor global inflation expectations higher. The ECB is in a similar bind: policymaker Nagel said the bank must act if geopolitical risk jeopardizes price stability, implying rate hikes are still on the table despite weak eurozone growth.

Equity implications are mixed. Growth and mega-cap tech stocks that benefit from lower rates face headwinds; long-durationBond price sensitivity to interest rate changes. assets like unprofitable software and speculative names could correct. However, financials and value equities rally on higher-for-longer rate expectations. The S&P 500 hit all-time highs on May 11, but this reflects earnings resilience and AI capex momentumThe empirical fact that winners keep winning over the medium term. rather than macro optimism; tech earnings are driving the market more than the geopolitical war, per Fundstrat strategist Hardika Singh. Gilt yields spiked on UK inflationThe rate at which prices rise across an economy. concerns, and the pound weakened as pressure mounted on Prime Minister Starmer; UK equities face headwinds from sterling strength relative to the dollar.

The debate hinges on whether inflationThe rate at which prices rise across an economy. is transitional or structural. If recent spikes are driven by geopolitical supply shocks and reverse once the Strait of Hormuz reopens, the Fed can cut later this year. If, however, the shocks prove persistent and Fed credibility erodes, the central bank may be forced into a rate-hike cycle later in 2026. This binary outcome will dominate asset allocation through year-end.