BofA Global Research now expects the Federal Reserve to deliver two rate cuts of 25 basis points each in September and December, following the release of a weaker U.S. jobs report.
Previously, BofA had been the only major Wall Street brokerage forecasting no rate cuts this year. Looking ahead to 2026, the bank projects an additional 75 basis points of easing.
Friday’s labor data showed U.S. job growth slowing sharply in August. The unemployment rate climbed to 4.3%, its highest level in nearly four years. This signaled a weakening job market and increased the likelihood of a September rate cut.
BofA economists wrote that the August jobs report should shift the Fed’s focus away from inflation and toward labor market weakness. However, they also cautioned that if conditions deteriorate further, the Fed may need to act again at its October meeting and possibly cut more in 2026.
Morgan Stanley offered a similar view, predicting 50 basis points of cuts by year-end. They noted that while a 25-basis-point cut in September is most likely, risks point toward 75 basis points in total by December.
Federal Reserve Chair Jerome Powell recently signaled that a cut is possible at the September 16–17 policy meeting. He acknowledged rising risks in the labor market but warned that inflation pressures still remain.
BofA explained its forecast shift was based both on softer labor data and Powell’s comments at the Jackson Hole symposium. Meanwhile, other global brokerages, including Citigroup, also expect the Fed to begin cutting rates in September.
