BofA and Goldman push back Fed rate-cut expectations on inflation risks, jobs data

By Kanishka Ajmera

May 11 (Reuters) - BofA Global Research and Goldman Sachs (GS) are the latest brokerages to revise their U.S. Federal Reserve rate calls to later dates, citing elevated inflation due to high energy prices and growing strength in the labor market.

BofA Global Research now expects the Fed to remain on hold for the rest of this year, with two 25bp cuts in July and September 2027, while Goldman Sachs (GS) sees cuts in December 2026 and March 2027 compared to its earlier forecast of a first rate cut in September 2026.

A host of global brokerages have recast their projections for U.S. rate cuts in 2026, split between some easing and no cuts at all, as the 10-week-old Middle East war has pushed energy prices higher and left policymakers cautious about inflation risks.

Data on Friday showed U.S. employment increased more than expected in April and the unemployment rate held steady at 4.3%, reinforcing expectations that the central bank would leave interest rates unchanged for some time.

Analysts at Goldman Sachs (GS) wrote that "if the labor market does not weaken sufficiently this year, we would instead expect the FOMC to deliver two final cuts in 2027," in a note dated May 8.

The Fed held rates steady at its April 29 meeting in an unusually divisive 8-4 vote, the closest since 1992. U.S. inflation remains well above the Fed's 2% target.

Traders expect the central bank to hold interest rates steady in the 3.50% to 3.75% range until the end of the year.

"We think (incoming Fed Chair) Warsh will push for lower rates, but the data flow precludes cuts for now," analysts at BofA said in a note dated May 8.

"However, cuts should be in play by next summer, with inflation much closer to target."

(Reporting by Kanishka Ajmera in Bengaluru; Editing by Janane Venkatraman and Ronojoy Mazumdar)