Wall Street banks split on 2026 rate-cut timing

Goldman Sachs and Bank of America became the latest major Wall Street banks to delay their rate-cut forecasts, moving their first-cut predictions from summer 2026 to December 2026 or March 2027. The shift reflects a reassessment of inflationThe rate at which prices rise across an economy. persistence driven primarily by the Middle East oil crisis and elevated energy costs. Both firms cited recent jobs data as a 'last straw' forcing them to acknowledge the Fed's hawkish stance will likely persist longer than previously expected.

This move reveals a widening divergence among Wall Street strategists. Some institutions remain bullish on summer cuts, while others now align with the Goldman and BofA view that inflationThe rate at which prices rise across an economy. will keep the Fed on hold through year-end. Morgan Stanley's macro team has flagged expectations for 'spicier' inflation data in coming weeks, suggesting more upside surprises in the CPI report. This creates confusion for equity and bond investors trying to position for Fed policy pivots that may not materialize on their prior timeline.

The timing debate matters enormously for asset allocation. Delayed rate cuts support the US dollar, benefit banks' net interest margins, and can pressure long-durationBond price sensitivity to interest rate changes. growth stocks that rely on lower discount rates. Conversely, persistent hawkishness extends the higher-for-longer regime, keeping real yields elevated and capping multiple expansion. Treasury markets have repriced, pushing long-end yields higher.

Central banks globally remain in wait-and-see mode, per Aberdeen economist Sree Kochugovindan, with inflationThe rate at which prices rise across an economy. expectations still anchored for now. But if energy-driven inflation prints persist over the next 4-6 weeks, the consensus for cuts this year could collapse entirely. The critical test arrives with Tuesday's CPI report, which will either validate the Goldman-BofA thesis or spark a partial repricing back toward earlier-cut expectations.