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Apr 12 - 09:55 AM

BofA: Revision of Fed Rate Cut Expectations to One in December 2024

By eFXdata  —  Apr 12 - 09:33 AM

Synopsis:

Bank of America has revised its expectations for the Federal Reserve's monetary policy, now forecasting only one rate cut in December 2024. The bank's assessment points to more persistent inflationary pressures than previously anticipated, prompting a delay in the expected easing of monetary policy.

Key Points:

  • Delayed Rate Cuts: Initially anticipating multiple rate cuts this year, BofA has adjusted its outlook to just one in December, citing recent inflation trends that do not support earlier cuts.
  • Inflation Trends: The first quarter of 2024 witnessed an annualized core CPI inflation rise to 4.5%, a significant increase from 3.3% at the end of 2023. This trend suggests that inflation pressures are more entrenched than expected, diminishing the likelihood of rate cuts in the near term unless there is a marked deterioration in the labor market.
  • Higher Terminal Rate: Reflecting on stronger economic indicators, BofA now anticipates a higher terminal rate for the Fed funds, adjusting its 2026 forecast up by 50 basis points to a range of 3.5-3.75%. This adjustment accounts for potential growth impacts from an expanding labor force, persistent inflation, and fiscal deficits.

Conclusion:

Bank of America's updated forecast underscores a cautious stance towards the Federal Reserve's path forward, with a single rate cut projected for December 2024. This outlook reflects growing concerns over sustained inflationary pressures that may require a more restrictive monetary policy than previously anticipated. As such, financial markets may need to adjust expectations for a less accommodative Fed in the near to medium term.

Source:
BofA Global Research

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