Bank of America analysts warned on Thursday that the Federal Reserve may face sharp internal divisions at its September policy meeting. The warning came after new signs of weakness in the U.S. labor market.
The July Job Openings and Labor Turnover Survey (JOLTS) reported a drop of more than 170,000 job openings, with June figures also revised lower. For the first time since April 2021, unemployed workers outnumbered available positions.
BofA said this trend “challenges the narrative” that labor slack has remained steady. The weaker data could also strengthen the case for near-term rate cuts. “Signs of increasing labor slack lower the bar for a September cut,” the analysts wrote.
The bank noted that JOLTS data is both lagged and limited by low response rates. However, Chair Jerome Powell’s comments at Jackson Hole suggested the Fed now relies heavily on incoming data to determine its next move.
BofA expects deep divisions inside the Federal Open Market Committee (FOMC). Analysts anticipate that governors Christopher Waller, Michelle Bowman, Mary Daly, and incoming member Adriana Kugler Miran may lean dovish, with Bowman and Miran possibly supporting a larger 50 basis-point reduction.
At the same time, officials including Hammack, Raphael Bostic, Musalem, and Schmid remain hawkish, stressing the need for price stability. With both Musalem and Schmid holding voting power, BofA said dissents could emerge on both sides if the Fed cuts rates in September.
