Bank of America Maintains Forecast for Two Fed Rate Cuts in 2026 Despite Inflation Risks

Bank of America is holding firm on its prediction that the Federal Reserve will cut interest rates twice in 2026, even as inflation concerns linger. In a note to clients, U.S. economist Aditya Bhave outlined why the bank believes easing remains on the table, citing the Fed's tendency to look past supply-driven inflation, minimal wage growth pressures, and broader political dynamics influencing monetary policy decisions.

While BofA recently revised its growth and inflation outlook — pointing to slightly weaker economic expansion and elevated price pressures — the firm says these adjustments are not significant enough to change its rate cut forecast. Bhave emphasized that the combination of structural factors still supports the case for lower borrowing costs before the year ends.

A key part of BofA's timeline centers on incoming Federal Reserve Chair Kevin Warsh, who is expected to be confirmed by September. By then, the bank believes there will be enough evidence of cooling inflation for Warsh to build internal support for rate reductions. BofA does acknowledge that the risks lean toward no cuts occurring, but its base case remains unchanged.

The latest March FOMC meeting minutes, released this week, painted a cautious picture. While a small number of officials have pushed back their expected timeline for cuts — and some even floated the idea of potential rate hikes — many participants still believe that lowering rates at some point this year remains appropriate.

On the consumer side, BofA flagged signs of softening demand. Real consumer spending rose just 0.1% month-over-month in February, translating to a modest 0.8% annualized pace over the prior three months. Meanwhile, headline PCE inflation ran at a 4.1% annualized rate during the same period, with energy prices expected to continue weighing on household purchasing power in the near term.