Chance of a Fed rate cut this year shrinks as inflation stays high

Published: 2026-05-13 07:02:14 ET GS

Published on 05/13/2026 at 07:02 am EDT

Key takeaways

Leading financial institutions, including BofA Global Research and Goldman Sachs, are adjusting their forecasts for possible interest rate cuts by the US Federal Reserve. These revisions are driven by concerns over persistent inflation, fuelled by rising energy costs and a robust labour market.

Rate cuts pushed back

BofA Global Research now expects the Fed to maintain its current interest rate policy for the remainder of 2023, followed by two cuts of 25 basis points in July and September 2027. Goldman Sachs has shifted its forecast for rate cuts to December 2026 and March 2027, postponing them compared with its original prediction of a first cut in September 2026.

The revised interest rate forecasts reflect the broader uncertainty in the global financial landscape. The ongoing conflict in the Middle East is contributing to high energy prices, making policymakers cautious about inflation risks.

Strong labour market figures

Recent data pointing to stronger-than-expected job growth in April and a stable unemployment rate reinforce expectations that the Fed is likely to leave interest rates unchanged for a longer period. Analysts at Goldman Sachs suggest that if the labour market does not weaken sufficiently this year, the Fed may postpone its last two rate cuts until 2027.

The Fed’s meeting on 29 April ended with the decision to keep rates steady within the range of 3.50 per cent to 3.75 per cent. Despite persistent inflation exceeding the Fed’s 2 per cent target, markets expect that range to remain unchanged until the end of the year.

Scope for future rate cuts

Analysts at BofA acknowledge that incoming Fed chair Warsh could argue in favour of lower interest rates, but emphasise that the current economic data do not yet justify such a move. They predict that rate cuts could become possible by next summer, assuming inflation moves closer to the Fed’s target. (fc)

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