BofA shifts Fed rate cut forecast to mid-to-late 2027 amid Iran conflict

## Market Snapshot

In the “Fed Decision June and July” market, the current pricing reflects a 2.1% YES likelihood for a 25 bps rate cut after the June 2026 meeting, down from 3% 24 hours ago. Meanwhile, the “Fed Rate Cuts Predictions for 2026” market shows a 57.7% YES likelihood for no cuts in 2026, up from 56% a day prior.

## Key Takeaways

– The revised Bank of America forecast suggests a prolonged high-rate environment, consistent with pricing supportive of NO rate cuts in June or July 2026. – Markets appear to interpret the ongoing Iran conflict and economic shocks as reducing the likelihood of 2026 rate cuts. – Current market trends suggest a growing consensus that the Fed will maintain current rates through 2026.

## Article Body

Bank of America (BofA) has revised its forecast, now expecting the US Federal Reserve to ease monetary policy by mid-to-late 2027, a shift from previous expectations of an earlier easing. This adjustment comes amid ongoing geopolitical tensions, particularly the prolonged conflict between Iran and Israel, which has escalated since 2025. The conflict, involving direct missile exchanges and proxy engagements, continues to disrupt regional stability and global economic conditions. The persistent hostilities, coupled with other economic factors like tariffs and artificial intelligence advancements, are influencing central bank policy forecasts, suggesting sustained high interest rates.

## Market Interpretation

The impact of BofA’s revised forecast on prediction markets is considered high. Pricing in the “Fed Decision June and July” market shows decreased confidence in a rate cut in the near term, supportive of a NO outcome. Similarly, the “Fed Rate Cuts Predictions for 2026” market indicates a strong probability of no cuts, consistent with the view that the Fed will maintain its current rate policy amid ongoing economic pressures.

## What to Watch

Watch for Fed communications and economic data releases, such as inflation and employment reports, for any shifts in the Fed’s outlook. Additionally, developments in the Iran conflict, including potential diplomatic resolutions, could influence market expectations. Key Federal Reserve meetings and speeches by Chair Jerome Powell and other governors will also be critical in shaping future rate expectations.

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