Wall Street delays Fed rate-cut forecasts on sticky inflation

Goldman Sachs and Bank of America are the latest major Wall Street banks to delay their interest-rate cut forecasts after recent jobs data and geopolitical inflationThe rate at which prices rise across an economy. shocks forced a recalibration. Both firms cited 'last straw' jobs data as justification for pushing rate cuts further into 2026 or beyond. The reversal is material: just weeks ago, consensus was pricing in multiple cuts by mid-2026, but that narrative has shifted toward a 'higher for longer' regime as inflation expectations remain sticky and supply-side shocks (Hormuz closure, Middle East war) add upside pressure to price indices.

Bond markets have repriced aggressively. The 'Warsh trade' (betting on the multiple rate cuts that Kevin Warsh, the Fed nominee, was expected to deliver) has come apart, with Treasury yields grinding higher as inflationThe rate at which prices rise across an economy. risks resurface. Central banks globally are in 'wait-and-see' mode rather than cutting, according to Aberdeen economists. The Indian central bank is weighing emergency steps to protect forex reserves, and Modi's call to curb fuel consumption suggests rate hikes ahead for India to combat inflation, not cuts. JPMorgan's Dubravka Lakos-Bujas notes that strong corporate earnings are currently outweighing geopolitical concerns, but the earnings advantage could erode if inflation pressures persist and margin compression accelerates.

The narrative shift creates headwinds for growth-sensitive equities and tailwinds for defensive positioning. Sectors like financials benefit from higher-for-longer rates, while high-multiple tech and discretionary names face valuation pressure if discount rates remain elevated. The May or June CPI release will be critical: a hotter-than-expected print would cement the 'sticky inflationThe rate at which prices rise across an economy.' narrative and push rate-cut expectations further out, while a cool reading could restore the 'soft landing' narrative.

Fed speakers are messaging cautiously, avoiding pre-commitment to cuts while remaining data-dependent. If jobs data continues to surprise to the upside and inflationThe rate at which prices rise across an economy. remains above the 2 percent target, rate cuts could be indefinitely postponed, forcing a regime change for financial markets and forcing 'growth at any cost' narratives to reassess.