Wall Street pushes out Fed cuts as inflation stays sticky

The Fed rate-cut narrative has shifted sharply. On May 11, Goldman Sachs and Bank of America joined a growing chorus of Wall Street banks delaying their initial cut forecasts. Goldman now expects December 2026 or later, pushed back from June, citing elevated energy prices from the Iran conflict and strong jobs data. The Conference Board Employment Trends Index rose to 105.77 in April, and April jobs reports came in hotter than expected, removing the near-term case for monetary easing.

Market repricing is visible in bond yields and rate swap curves. The 2-year Treasury has held above 4.4%, and Fed funds futures show minimal probability of a cut before mid-year 2026. This dynamic compresses tech valuations, especially long-durationBond price sensitivity to interest rate changes. growth names like unprofitable AI startups. However, mega-cap tech with strong free cash flowCash generated after maintenance capex; the actual money the business throws off. and AI exposure like NVIDIA, Microsoft and Amazon continue to attract capital despite higher rates, as their AI optionality is seen as inflationThe rate at which prices rise across an economy.-proof.

Central banks globally are in wait-and-see mode. The ECB and BOE face stagflation risks from the oil shock and imported inflationThe rate at which prices rise across an economy., but lack the labor market tightness the Fed sees in the US. Aberdeen research noted that inflation expectations remain anchored for now, but that's contingent on energy prices not staying elevated for an extended period. Morgan Stanley expects US inflation data this week to be "spicier" than expected, testing the durability of recent market gains.

The debate among strategists is whether this repricing is healthy (killing zombie companies, reallocating to profitable tech) or destabilizing. Wall Street consensus has shifted from "soft landing with cuts" to "hold steady until inflationThe rate at which prices rise across an economy. breaks." This rewards quality and punishes leverage. Smaller-cap tech and leveraged buyout portfolios feel the pain, while Treasury yields rising support financials and energy. The near-term catalyst is Tuesday's CPI report; any surprise upside locks in the "no cuts" narrative until Q3 2026.