For months, the prevailing wisdom on Wall Street was that the Federal Reserve’s next move would be down. Rate cuts were the base case, multiple ones were priced in for 2026, and the only real debate was timing. That narrative is cracking.
The Bank of America Global Fund Manager Survey now shows institutional investors increasingly pricing in the risk that the Fed doesn’t just pause its cutting cycle. They think it might reverse course entirely and hike rates again if inflation picks back up.
The rate-cut dream is fading
The Federal Reserve currently holds its target federal funds rate in a range of 3.50% to 3.75%, with the effective rate hovering around 3.6% to 3.7%. At its most recent meeting, the Fed opted to keep rates steady, pointing to heightened inflation uncertainty and a sluggish labor market as reasons for caution.
None of that screams “emergency.” But the shift in investor sentiment is notable because it represents a meaningful recalibration of expectations.
