One house, no cuts: BMO puts the Fed on hold through 2026 and most of 2027

Jennifer Lee, senior economist at BMO Capital Markets, expects the Federal Reserve to leave rates exactly where they are for the remainder of 2026, with the first cut not arriving until late 2027 ^[1][2]. For anyone whose 2027 budget assumes a lower cost of debt, that is a forecast to reprice against, because it removes the entire easing cycle from next year's planning window ^[1][2].

The timing matters more than the direction. Kevin Warsh, nominated by President Trump, was confirmed and sworn in as chair on May 22, 2026 ^[3]. Lee's timeline implies Warsh spends at least his first 17 months in the job without cutting once ^[11]. The source article notes only that new leadership tends to raise questions about whether the central bank's direction might shift; it attributes no particular policy stance to Warsh ^[12]. If your capital plan quietly assumes that a new chair means a lower policy rate, this forecast does not contain that assumption.

The shape of the eventual easing is as informative as its start date. BMO's outlook envisions yields averaging around 4.25% once cuts do arrive, which the publisher reads as a slow descent rather than an aggressive one ^[4][5]. That is the number to model: not a return to the near-zero era, but a policy rate that settles in the low fours after a cycle that has not yet begun. Refinancing math built on a 2% handle has no support in this scenario.

Lee flagged geopolitics as a complicating factor, pointing specifically to the conflict in Iran as an influence on the Fed's calculus ^[6]. The mechanism is familiar: instability produces supply-side shocks, energy prices move, and inflation readings follow ^[6]. BMO's mid-2026 scenarios build in flexibility on that account, and the firm's models suggest future rate moves will be driven by whatever the data says at the time rather than by a fixed schedule ^[7]. Which is to say the late-2027 date is a base case, not a commitment, and the risk around it is not symmetric in an obvious way.

Two caveats on the strength of this call. It is one house's view, carried by one publication, and it rests on Lee's read after roughly three decades covering the Fed at BMO ^[8]. Nothing here establishes that the broader sell side has converged on the same path.

The allocation consequence is straightforward, and the publisher spells it out. Bond yields stay elevated by recent historical standards, which makes conventional debt instruments more attractive than they were when money was free ^[9]. A 4%-plus government yield is real competition for capital that might otherwise chase speculative assets, and on this timeline meaningful flows into crypto wait until the Fed signals a definitive turn toward easing, which Lee pushes into the second half of 2027 ^[10].

What to watch: Fed meeting schedules through early 2027, when the publisher argues enough data may accumulate to justify a first move ^[13]. Watch also whether other forecasters follow BMO to a zero-cut 2026, because a single dissenting house is a data point and a consensus is a discount rate. And watch energy, since the Iran channel Lee named is the most plausible route to an inflation print that pushes late 2027 later still ^[6].