BofA Predicts Fed Rate Cuts in September and December
Bank of America (BofA) analysts expect the Federal Reserve to cut interest rates this week, followed by another reduction in December.
In a client note, Claudio Irigoyen’s team pointed to Fed Chair Jerome Powell’s August remarks signaling the need for rate cuts. That guidance came before weaker U.S. jobs data and softer inflation figures last week.
Traders are now almost certain the Fed will lower rates at the conclusion of its two-day meeting on Wednesday. Markets price in a 95% chance of a 25-basis-point cut, with only a slim 5% chance of a larger 50-basis-point move, according to the CME FedWatch Tool.
The first cut would mark a restart of the easing cycle after the Fed paused in December. Supporters argue lower rates could boost investment and hiring, though inflation risks remain.
BofA analysts caution that the path ahead will not be smooth. They note that the Fed’s preferred inflation measure, the core personal consumption expenditures (PCE) index, is likely to stay above 3% through the first half of next year. The Fed’s official inflation target remains 2%.
While BofA anticipates cuts in September and December, analysts warn an additional October cut depends heavily on labor market data. Signs of weakness in U.S. employment will weigh more than inflation in shaping that decision.
The Fed’s current target rate is set between 4.25% and 4.5%.
