Economists at BofA Securities say they anticipate two reductions to the Federal Reserve’s policy rate in 2026 - one at the central bank’s June meeting and a second at its July meeting - even as they maintain that such cuts are not justified by current economic conditions.
In a client note published on Friday, the team including Aditya Bhave and Stephen Juneau argued that recent data weaken the case for near-term easing. The economists point to a decline in the unemployment rate and a two-month rise in the Fed’s preferred inflation gauge as developments that "challenge the case for cuts."
BofA’s outlook contrasts with public calls from Kevin Warsh, President Donald Trump’s nominee for Fed Chair, who has pushed for significantly lower rates. The BofA economists said those reductions are "not warranted." They cited their forecast that the broader U.S. economy will remain on a firm footing, supported by resilient consumer demand and substantial ongoing spending on artificial intelligence infrastructure.
The bank’s note also flagged that market expectations and internal Fed dynamics could still produce easing. BofA wrote that Warsh may be able to secure "a couple" of rate cuts if there is "a lot of turnover" among members of the Federal Open Market Committee or if the incoming economic data shows a temporary blip in weakness.
Officials and markets have reacted to recent Fed communications. Minutes from the central bank’s January meeting were widely read as hawkish; one notable passage reported that "several" participants said they would have supported describing the policy outlook as two-sided, acknowledging the theoretical possibility of a rate hike should inflation remain above the Fed’s 2% target.
At its most recent meeting last month, the Fed left its funds rate in the range of 3.5% to 3.75%, adopting a wait-and-see approach following a series of borrowing-cost reductions over the prior year. Market pricing from the CME FedWatch tool shows roughly a 47% probability that the next rate cut will come in June.
BofA summed up the committee’s risk assessment by noting that "there seems to be consensus on the committee that downside risks to labor have diminished, while upside risks to inflation remain." The economists added that with the jobless rate having now ticked down to 4.3% since the January meeting, the bar for cuts under Fed Chair Jerome Powell at the March and April meetings is "now very high."
Investors and policymakers will be watching upcoming data releases closely. A fresh reading of the personal consumption expenditures price index - the Fed’s preferred inflation measure - and an advance estimate of fourth-quarter U.S. growth were both slated for release on Friday, and BofA emphasized those prints could influence the debate over policy timing.
Key points
- BofA projects two Fed rate cuts in 2026, at the June and July meetings.
- Economists say falling unemployment and a recent rise in the Fed’s preferred inflation gauge undermine the case for cuts.
- Ongoing consumer demand and large-scale AI infrastructure spending support BofA’s view of a firm economy.
Risks and uncertainties
- Voting dynamics at the Federal Open Market Committee could enable cuts if there is significant turnover among members - a political or personnel risk affecting monetary policy.
- A temporary deterioration or "blip" in economic data could prompt the Fed to ease despite the underlying case against cuts - a data-driven risk to financial markets and interest-sensitive sectors.
- Upcoming releases - including the PCE price index and the advance estimate of fourth-quarter GDP - introduce near-term uncertainty for the policy outlook and market pricing.