Global rate cuts still outnumber hikes, but BofA warns the easing cycle is losing momentum

Bank of America (BofA) Global Research has told clients that the worldwide monetary easing cycle remains intact, with central bank rate cuts still outpacing hikes across the major and emerging economies, yet the momentum behind that easing is fading fast. The call matters because it reframes the central market assumption of the past two years, namely that falling rates would keep flowing as a tailwind for risk assets, bonds, and emerging market currencies. According to Bank of America, the net balance of global cuts over hikes is narrowing as developed market central banks pivot from cutting toward holding, and in several cases toward the possibility of hiking again. The shift is being driven largely by the energy price shock from the 2026 Iran war, which has pushed inflation back above target across multiple economies and forced policymakers to defend credibility rather than support growth. For investors positioned for a smooth global easing path, the warning is that the cheapest part of the cycle may already be behind them.

What is BofA actually saying about the balance between global rate cuts and hikes right now?

The core of the Bank of America message is directional rather than a single dramatic data point. Cuts still lead hikes when measured across the full universe of central banks that Bank of America tracks, which keeps the headline easing narrative technically alive. The important qualifier is that the lead is shrinking month by month as the developed world stops contributing to the cut tally and emerging markets carry an increasing share of whatever easing remains.

That distinction carries real analytical weight. A global easing cycle dominated by emerging market cuts is a very different signal than one led by the Federal Reserve, the European Central Bank, and the Bank of England moving together. Emerging market easing tends to reflect local disinflation and currency stability rather than a synchronized global growth impulse, so the quality of the easing has deteriorated even where the quantity has not yet collapsed.

The third observation is about positioning risk. When a trend is still technically in force but visibly weakening, markets often hold onto the consensus longer than the data justifies. Bank of America is effectively flagging that the gap between what the easing tally says and what the forward path implies has widened, and that gap is where mispricing tends to build.

Why is the easing momentum fading even though cuts still outnumber hikes worldwide?

The fading momentum is a story of developed market central banks stepping out of the cutting club. The Federal Reserve held its benchmark rate steady at a range of 3.50 to 3.75 percent at its April meeting in an unusually divisive eight to four vote, the closest split in more than three decades, signalling that the committee is no longer comfortably biased toward easing. Bank of America has pushed its own forecast for the next Fed cuts all the way out to July and September of 2027, a sharp delay from its earlier expectation of cuts in 2026.

Beyond the Fed, the change in tone has spread to other major institutions. Several central banks that markets previously expected to ease or hold, including the European Central Bank, the Bank of Canada, and the Swiss National Bank, are now seen as candidates to hike modestly this year. The Bank of Japan remains the structural outlier, having continued to raise rates against the global grain as it normalizes policy after years of ultra-loose settings.

The second-order point is that this is a supply-driven inflation problem, not a demand-driven one, which complicates the policy response. Central banks would normally look through an energy shock, but with inflation already elevated and labor markets still firm, the room to dismiss it has narrowed. That is why the debate in several developed economies has shifted from how fast to cut toward whether the next move could be a hike, a conversation that was almost absent through 2025.

How has the 2026 Iran war reshaped the inflation and rate path for major central banks?

The single biggest variable behind the fading easing momentum is the energy price surge tied to the 2026 Iran war. Sustained pressure on oil and gas has fed directly into headline inflation across import-dependent economies, and it has lingered long enough that policymakers can no longer treat it as a transitory spike to be ignored.

In the United States, the inflation picture has moved the wrong way for doves. Headline and core inflation readings have firmed rather than cooled, and a stronger than expected run of jobs data has removed the labor market softness that might otherwise have justified cuts. Bank of America economist Aditya Bhave summarized the shift bluntly, arguing that the data simply do not warrant cuts this year and that solid employment combined with hawkish commentary closed the door on near-term easing.

For Europe and Canada, the energy exposure is even more acute given their reliance on imported fuel, which is why the market has flipped from pricing easing to pricing potential hikes at the European Central Bank and the Bank of Canada. The broader consequence is a loss of policy synchronization. When the Fed, the ECB, and the Bank of Japan are pulling in different directions, currency volatility rises and the clean global easing trade that supported risk assets through 2025 becomes far harder to express.

What does fading rate-cut momentum mean for emerging markets, the dollar and equities?

Emerging markets sit at the center of the read-through because they have been the engine of whatever global easing remains. The iShares MSCI Emerging Markets exposure traded slightly higher around the time the Bank of America note circulated, reflecting that local easing and a softer dollar over the past year have been supportive. The risk is that this support is contingent on developed market central banks staying on the sidelines rather than turning hawkish.

If the Fed and its developed market peers move toward hikes, the dollar dynamic that has helped emerging markets could reverse. A firmer dollar tightens financial conditions across emerging economies, pressures local currencies, and can force their central banks to slow or halt the very cuts that have kept the global tally positive. In that scenario the last leg of the easing cycle disappears quickly, which is precisely the momentum loss Bank of America is flagging.

For equities and bonds, the implication is a narrower margin for error. Bank of America has previously pointed to a ten-year Treasury yield ending 2026 in the range of roughly 4 to 4.25 percent, with the debate now centered on whether risks tilt toward higher yields if no cuts arrive. Equity valuations that were underwritten on the assumption of continued global easing face a re-rating risk if the cut tally rolls over faster than consensus expects.

What are the second-order risks if developed-market central banks pivot from holds to hikes?

The most consequential risk is a regime shift in market psychology. For most of 2025 the only question at developed market meetings was whether to hold or cut, and hikes were not part of the conversation. A move to two-sided risk, where hikes become a live possibility, changes how every rate-sensitive asset is priced and tends to compress the valuations that thrived on cheap money.

A second risk is policy error in both directions. Cutting too soon into an energy-driven inflation episode risks unanchoring expectations and forcing larger hikes later, while holding or hiking into a slowing economy risks tipping growth lower at a time when the energy shock is already a tax on consumers. The divisive eight to four Fed vote in April illustrates that even the policymakers themselves are split on which error is more dangerous.

The final consideration is leadership transition risk at the Fed. With an incoming chair expected to shape the 2027 path, the market faces uncertainty not just about the data but about the reaction function itself. Bank of America has framed September of next year as a plausible turning point once enough evidence of cooling inflation accumulates, but that timeline leaves a long window in which the global easing tally can erode and in which the cut-versus-hike balance the bank is tracking could finally flip.

Key takeaways on what fading easing momentum means for markets, central banks and investors

• Bank of America says global cuts still outnumber hikes, but the lead is narrowing as developed market central banks stop cutting, which downgrades the quality of the remaining easing cycle.
• The easing tally is increasingly carried by emerging markets, a weaker and less synchronized signal than coordinated developed market cuts.
• The 2026 Iran war energy shock is the primary driver, pushing supply-driven inflation high enough that policymakers can no longer look through it.
• The Fed held at 3.50 to 3.75 percent in a divisive eight to four April vote, and Bank of America has pushed its next-cut forecast out to July and September 2027.
• The European Central Bank, Bank of Canada, and Swiss National Bank have shifted from expected easing toward possible hikes, while the Bank of Japan continues to tighten.
• Loss of policy synchronization raises currency volatility and undermines the clean global easing trade that supported risk assets through 2025.
• Emerging market strength is contingent on developed market central banks staying sidelined, so a hawkish pivot could reverse the dollar dynamic that has helped them.
• Equity and bond valuations underwritten on continued easing face re-rating risk if the global cut tally rolls over faster than consensus assumes.
• A move to two-sided rate risk, where hikes re-enter the conversation, is a psychological regime shift that compresses rate-sensitive valuations.
• Fed leadership transition adds reaction-function uncertainty, leaving a wide window in which the cut-versus-hike balance could finally flip negative.