Bank of America Withdraws All 2026 Rate Cut Forecasts — First Fed Cut Now July 2027; Warsh Faces Impossible Dual Mandate on Day Two
Bank of America became the latest major bank to remove all Federal Reserve rate cut expectations for 2026, pushing its first projected cut to July 2027 — a dramatic hawkish shift that crystallized the impossible position new Fed Chair Kevin Warsh faces on only his second day in office. **BofA Forecast Change:** - **Previous:** At least one 25 bps rate cut in Q4 2026 - **New:** Zero cuts in 2026; first cut July 2027; second cut September 2027 - **Quote (BofA Global Research):** 'Warsh will push for lower rates, but the data flow precludes cuts for now' - BofA traders pricing **zero probability of cuts through end of 2027**, with some market participants now pricing a possible **rate hike by March 2027** (>50% probability implied) **The Warsh Paradox:** President Trump nominated Kevin Warsh specifically with the expectation of lower interest rates. On day two of his chairmanship, the market consensus has shifted to: - No Fed cuts in 2026 (unanimous across Goldman, JPMorgan, BofA) - Possible rate *hike* by Q1-Q2 2027 - First projected cut pushed to mid-2027 at the earliest **Rate Environment on May 16:** - Current Fed Funds Rate: **3.50–3.75%** - 10Y Treasury yield: **~4.59%** (weekly close — highest since May 2025) - CME FedWatch: ~30% probability of at least one rate hike by year-end 2026 - First FOMC meeting under Warsh: **June 16-17, 2026** (31 days away) **Inflation Data Driving the Forecast:** - April CPI: 3.8% YoY (released May 12 — highest since May 2023) - April PPI: +6.0% YoY (released May 13 — hottest since December 2022) - Core PCE: 3.2% (March 2026, released April 30) - Brent crude: ~$111/bbl (sustained Hormuz disruption — no breakthrough at Trump-Xi summit) **Section 122 Cliff Adds Urgency:** The July 23 Section 122 tariff expiration (67 days away) creates an additional complication for Warsh: a cliff-edge policy decision that could swing tariff rates materially in either direction and alter the inflation trajectory immediately before the September FOMC meeting. Congressional inaction on the cliff is the base case.