BofA Securities is holding firm on its forecast that the Federal Reserve will not cut interest rates in 2025, despite rising market expectations for a reduction as early as September. This comes after weaker-than-expected July jobs data, including significant downward revisions to previous months, which suggest the U.S. economy may not be as strong as it appeared following Trump’s April 2 tariff announcement.
Markets now see over a 90% chance of a rate cut at the Fed’s September 16–17 meeting, according to CME’s FedWatch Tool.
However, BofA analysts, led by Aditya Bhave, say they are sticking with their call that the Fed will keep rates at 4.25%–4.5%. They acknowledge the labor data revisions make a rate cut more plausible—but only under what they term “bad cuts” driven by genuine labor market deterioration, not just short-term weakness.
They also argue that markets may be misinterpreting the situation by confusing recession with stagflation. Despite falling demand for workers, a sharp drop in the foreign-born labor force (down 802,000 since April) has kept labor market slack contained. Wage growth and total labour income remain strong, while unemployment and vacancy rates have stayed flat for a year.
Finally, BofA stresses that with inflation still running well above the Fed’s 2% target, any rate cut would be premature without clear signs of a downturn. They note Fed Chair Powell is likely to tolerate weaker job growth as long as unemployment remains steady, and that the Fed is still more concerned about inflation than employment.
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Well, here I am again passing on curmudgeonly view points. Like I said in the piece above, “Markets now see over a 90% chance of a rate cut at the Fed’s September 16–17 meeting, according to CME’s FedWatch Tool.” The screenshot for this post is from the FedWatch tool. Yeah, expectations of a September cut are super-strong at 94% or so. Not so says BoA here.
I do have an issue with this:
- They acknowledge the labor data revisions make a rate cut more plausible—but only under what they term “bad cuts” driven by genuine labor market deterioration, not just short-term weakness.
Bad cut or good cut, its still a cut, guyz.
I posted earlier on Daly swinging a little more dovish:
But, don’t abandon a viewpoint that carefully assesses what was said:
Also, Williams spoke, as I posted on the weekend, and I’m not seeing a lot on this:
- Fed’s Williams say’s he’ll have “very much an open mind” on September meeting rate cut
- Weekend Fed Williams – “very much an open mind” on September rate cut. I have comments!
Based on Williams and Daly there does seem to be movement at the FOMC towards a nearer term cut.
This article was written by Eamonn Sheridan at investinglive.com.