Bank of America's economics team, led by chief economist Michael Gapen, published a major forecast revision on May 13, shifting to zero rate cuts in 2026 and no easing until at least Q2 2027. The revision, which came hours after the 6% PPI print and the Warsh confirmation, represents the most hawkish Fed forecast among major Wall Street banks.
Gapen cited three converging factors: persistent energy-driven inflation from the Hormuz crisis, the confirmed appointment of a hawkish Fed Chair who has publicly opposed premature easing, and a labor market that remains too tight to justify accommodation. The forecast sent TLT down an additional 0.5% in late trading.
What happened
Bank of America's revised forecast calls for the federal funds rate to remain at 5.25-5.50% through all of 2026 and into Q1 2027, with the first 25 basis point cut not arriving until June 2027 at the earliest. The previous BofA forecast had called for one 25bp cut in December 2026. Gapen's note argued that the 6% PPI reading eliminates any credible case for easing, and that Warsh's appointment ensures the Fed will prioritize inflation-fighting over growth support. The note also raised BofA's 2026 year-end 10-year yield forecast from 4.25% to 4.75%, implying further bond market losses from current levels. BofA is now the most hawkish among the five largest U.S. investment banks, with Goldman Sachs still forecasting one cut in September 2026 and JPMorgan expecting two cuts starting in November.
Why it matters
Bank of America's forecast matters not just as a prediction but as a signal of where institutional fixed-income positioning is headed. BofA's fixed-income desk manages over $300 billion in assets, and their house view influences portfolio construction for thousands of institutional clients. A no-cuts-until-2027 scenario has profound implications for corporate borrowing costs, mortgage rates, leveraged buyout economics, and the relative attractiveness of equities versus bonds.
Market impact
The BofA note amplified the bond selloff that was already underway from the PPI and Warsh catalysts.