BofA pours cold water on what's next for rates under Powell

If you were betting connected the Federal Reserve to support the rate-cut enactment going, I person immoderate atrocious news: Bank of America has conscionable poured acold h2o connected that forecast.

In a caller probe enactment shared with me, analysts revealed an uncomfortable truth: portion Jerome Powell remains astatine the helm until May, the "relief" for consumers has already stalled. Despite the Fed's easing precocious past year, the 10-year Treasury yield—which dictates everything from mortgages to car loans—is stubbornly clinging adjacent 4.2%. This disconnect betwixt Wall Street’s "soft landing" hopes and Main Street's borrowing world has reached a breaking point.

The 121-year-old bank's economists expect the Fed to permission involvement rates unchanged astatine its January 28 gathering and perchance done the remainder of Powell's tenure. This "pencils down" outlook aligns with the Fed’s ain December dot plot, which signaled lone 1 solitary chopped for each of 2026. It besides mirrors the CME’s FedWatch tool, wherever traders person pushed the likelihood of immoderate existent alleviation retired to June astatine the earliest.

This is simply a gut punch for homebuyers hoping to adjacent the affordability spread and families anxious to refinance. The setup suggests we whitethorn person already seen the past chopped of the Powell era, leaving borrowers stranded successful a "higher-for-longer" world conscionable arsenic the enactment modulation begins.

Bank of America's stark instrumentality connected involvement rates follows a December jobs study that fundamentally closed the doorway connected a January cut.

"The cardinal statistic is the u-rate moving down to 4.4%," wrote BofA analysts. "This people volition support the Fed comfortably connected clasp successful January. We instrumentality with our telephone that they won't chopped again nether Powell."

For a Fed that operates connected a dual mandate of debased ostentation and debased unemployment, 2025 was a twelvemonth of brutal contradictions. In my 30-year career, I’ve seldom seen these 2 goals vie truthful fiercely. President Trump’s tariffs contributed to CPI climbing from 2.3% successful April to 2.7% by November, portion unemployment peaked astatine 4.6% (revised down to 4.5%) earlier its caller dip.

The hostility was palpable—and it apt outgo Powell his job.

Worried astir fanning inflationary flames, Powell stayed connected the sidelines until September. While helium chopped rates astatine the last 3 meetings of 2025, it appears to person been excessively little, excessively precocious to unafraid a re-nomination. With his word expiring connected May 15, 2026, BofA economists judge the Fed is officially connected hold.

More Federal Reserve:

• Cooling jobs study resets Fed interest-rate chopped bet

• Fed faces 2026 upheaval arsenic system shifts, Powell exits

• Fed authoritative forecasts bold way for involvement rates, GDP successful 2026

• Fed cuts rates arsenic dissents loom astatine cardinal December meeting