Bank of America has moved its projection for the next Federal Reserve rate cut to mid-to-late 2027, pointing to the Iran conflict as the primary reason. The revised timeline marks a significant delay from what many had expected, and it comes as the central bank keeps borrowing costs high to fight inflation.
Why the forecast shifted
In a note to clients, BofA analysts said the escalating tensions with Iran are now a key variable in the economic outlook. The conflict, they argued, adds a layer of uncertainty that makes it harder for the Fed to ease policy. Instead of cutting rates in 2025 or 2026 as some hoped, the bank now sees the first reduction more than three years out.
The move reflects how geopolitical shocks can ripple through monetary policy. When a major oil-producing region is in turmoil, energy prices become volatile, and inflation expectations can drift upward. That pushes central bankers to keep rates higher for longer.
What prolonged high rates mean
The forecast suggests the U.S. economy will face an extended period of tight money. That could slow business investment and put pressure on households carrying credit card debt or variable-rate mortgages. While the Fed's benchmark rate already sits at a two-decade high, BofA's outlook implies it will stay there for years.
Economic growth may struggle under the weight of sustained high borrowing costs, especially if the Iran conflict triggers supply disruptions or a broader regional war. The bank's analysts warned that the combination of geopolitical risk and elevated rates could strain markets.
For now, the Fed has given no signal it plans to cut. Chairman Jerome Powell has repeatedly said the central bank needs more evidence that inflation is under control before easing. BofA's timeline makes clear it expects the data to cooperate only slowly.
The next Federal Open Market Committee meeting will shed light on whether other banks share BofA's view. Investors will watch for any shift in the Fed's language on rate cuts. Until then, the 2027 forecast stands as a stark reminder that the era of cheap money is a long way off.
