Millions of Americans hoping for lower borrowing costs this year received a blunt new message from Wall Street Friday: relief may not arrive until 2027.
Bank of America Global Research formally abandoned its forecast for Federal Reserve rate cuts in 2026, now projecting the Fed will keep interest rates elevated until the second half of 2027 — a major reversal that immediately reshapes expectations for mortgage rates, credit card costs, business lending, and consumer borrowing across the U.S. economy.
The shift marks one of the clearest acknowledgments yet from a major financial institution that the “higher-for-longer” era of interest rates is proving far more durable than markets and consumers expected only months ago.
“We no longer expect the Fed to cut rates this year,” Bank of America economists wrote in a client note Friday, citing a growing mix of economic disruptions including inflation pressures tied to tariffs, the economic fallout from the Iran war, and rapidly accelerating artificial intelligence investment spending.
The bank had previously forecast two Federal Reserve rate cuts in September and October 2026, partly based on expectations that Kevin Warsh, President Trump’s nominee to replace Jerome Powell as Fed chair, could steer policymakers toward monetary easing.
Instead, Bank of America now says inflation risks remain too elevated for the Federal Reserve to justify cutting rates anytime soon.
“Core inflation is too high, and moving up,” the bank’s economists wrote, adding that meaningful easing is now more likely to begin only in the latter half of 2027 as inflation gradually cools.
The Federal Open Market Committee last reduced rates in December 2025, trimming the federal funds rate by a quarter percentage point. Since then, the benchmark rate has remained locked between 3.5% and 3.75%, where it has stayed through multiple Fed meetings this year.
That steady rate environment is directly affecting household finances nationwide.
According to Freddie Mac, the average 30-year fixed mortgage rate currently sits near 6.3%, while Fannie Mae forecasts rates will remain near 6.1% through the end of the year. For many prospective homebuyers, borrowing costs remain more than double the historically low mortgage rates seen during the pandemic housing boom.
For consumers carrying variable-rate debt, the consequences are equally significant. Credit card interest rates, home equity lines of credit, auto loans, and small business financing costs all remain closely tied to Federal Reserve policy and the prime rate.
The bank’s revised outlook reflects a broader shift taking place across Wall Street and within the Federal Reserve itself.
Deutsche Bank economists have also warned that inflation may remain above the Fed’s 2% target well into next year, fueled partly by rising energy prices following the Iran conflict and continued spending tied to AI infrastructure expansion.
March consumer price data showed inflation running at an annual rate of 3.3%, significantly above the Fed’s long-term goal.
Meanwhile, financial markets are increasingly aligning with the view that rates may stay elevated longer than previously expected. CME Group’s FedWatch Tool, which tracks trader expectations for Federal Reserve moves, now shows less than a 50% probability of rate cuts before the second half of 2027.
Several Federal Reserve officials have also recently signaled caution.
Chicago Fed President Austan Goolsbee and St. Louis Fed President Alberto Musalem have both warned that rapid AI-driven productivity gains could paradoxically keep inflation elevated by boosting corporate investment, consumer demand, and overall economic activity faster than supply can keep pace.
The irony for many Americans is that the same strong economic data helping sustain employment is also delaying the rate relief consumers were counting on.
April’s nonfarm payrolls report showed the U.S. economy added 115,000 jobs, more than double Wall Street expectations, while unemployment held steady at 4.3%. A labor market that resilient gives the Fed little urgency to stimulate the economy through lower rates.
For small businesses, elevated borrowing costs continue to pressure expansion plans, equipment purchases, and commercial real estate financing at a time when energy prices and goods inflation are already tightening profit margins.
For the housing market, the impact may prove even more lasting.
Higher mortgage rates continue to lock many homeowners into existing low-rate mortgages, reducing available housing inventory while pricing out many first-time buyers. Economists say prolonged elevated rates could further slow home sales activity through 2026 and potentially into 2027.
Mike Fratantoni, Chief Economist at the Mortgage Bankers Association, said following the Fed’s March meeting that policymakers appear increasingly reluctant to cut rates given inflation concerns.
“A growing number of FOMC members now expect no cuts — or at most, one — to the federal funds target this year, likely due to a more negative inflation outlook,” Fratantoni said. “This is a noticeable but predictable pullback from what had been published in December.”
For Americans waiting to refinance mortgages, reduce credit card costs, finance business expansion, or simply see borrowing become more affordable again, Bank of America’s forecast revision sends a clear message: the era of expensive money may be far from over.
JBizNews Desk
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