Bank of America has pushed back its expectation for Federal Reserve rate cuts to 2027, blaming inflation that refuses to cool. The bank’s economists now see no cuts coming until that year, a shift from earlier predictions. The move comes as a separate prediction market assigns a 57.9% probability that the Fed will deliver zero cuts in 2026.
Why the delay
The decision to delay the rate-cut timeline stems from persistent inflationary pressures. Bank of America’s analysis points to price increases that continue to run above the Fed’s target, forcing the central bank to hold rates higher for longer. The bank had previously forecast cuts starting in 2025, but that timeline has now been extended by two years.
Inflation data over the past several months has repeatedly surprised to the upside. Core inflation measures, which strip out volatile food and energy prices, have remained stubbornly elevated. The Fed has kept its benchmark rate at a two-decade high, and officials have repeatedly signaled they need more evidence that inflation is sustainably moving toward 2% before easing.
What the prediction market says
A widely watched prediction market or poll now shows a 57.9% probability that the Federal Reserve will not cut rates at all during 2026. That figure suggests traders and investors are betting that the central bank will stay on hold well into the second half of the decade.
The market-based probability has climbed in recent weeks as fresh inflation readings came in hot. The number reflects a growing consensus that the economy may not cool enough to justify rate reductions anytime soon. If the prediction holds, it would mark an extended period of tight monetary policy unlike anything seen in recent decades.
The Fed's next policy meeting is scheduled for May. Investors will watch for any shift in the central bank's language around inflation and the timing of potential cuts. Bank of America's revised forecast aligns with a growing view among some economists that the path to lower rates could be longer than previously assumed.
For now, the message from the data is clear: inflation hasn't surrendered. And until it does, the Fed's rate lever stays locked.
