Bank of America's economics team now thinks the Federal Reserve will hold interest rates at their current level through all of 2025 and 2026, with the first cut not arriving until 2027. The call is more aggressive than most Wall Street forecasts and reflects growing concern that inflation will stay elevated far longer than the Fed — or markets — have priced in.

What's driving the forecast

Bank of America points to two forces. First, a more hawkish tilt at the Fed — meaning policymakers are leaning toward keeping rates high rather than cutting them. Second, inflation that isn't falling fast enough. If price pressures stay stubborn, the Fed has no political or economic cover to ease borrowing costs, regardless of how much slower growth gets.

The Fed's benchmark rate directly sets the floor for borrowing costs across the economy — mortgages, auto loans, corporate debt, and credit cards all follow it. Every month rates stay at current levels, that pressure compounds for households and businesses carrying variable-rate debt or looking to refinance.

What this means in practice

For markets, a 2027 rate-cut timeline pushes back a key catalyst that equity and bond investors have been anticipating. Stocks — especially in rate-sensitive sectors like real estate and utilities — tend to benefit when cuts arrive. Longer-dated bonds also rally when rates fall. Both trades get delayed if Bank of America is right.

For businesses, sustained high rates keep the cost of capital elevated. Companies planning expansions, acquisitions, or refinancing will face tighter conditions longer than many had planned for. Smaller firms that rely on floating-rate credit lines feel this most acutely.

For consumers, mortgage rates are unlikely to come down meaningfully in the near term. Homebuyers waiting for relief may be waiting years, not months. Credit card and personal loan rates, which closely track Fed policy, also stay high.

The Bank of America view is more pessimistic than the Fed's own projections, which as of early 2025 still pointed to cuts before 2027. Whether the broader market re-prices to match this timeline depends on upcoming inflation data and how Fed officials talk about the path ahead in coming months.