Synopsis:

BofA maintains its call for two Fed rate cuts in 2025 following the December FOMC’s hawkish 25bp rate cut but acknowledges that risks have shifted toward fewer or even no cuts amid rising inflation concerns and resilient economic data.

Key Points:

• Hawkish Rate Cut:

  • BofA highlights that the December FOMC delivered a 25bp cut but adopted hawkish guidance by emphasizing the “extent and timing” of future adjustments.
  • This change opens the possibility that the Fed's cutting cycle could be nearly over.

• Updated SEP and Projections:

  • The SEP showed only two projected cuts in 2025, driven by inflation concerns, marking a hawkish shift.
  • Core and headline PCE inflation for 2025 were revised up to 2.5%.
  • Economic forecasts improved, with growth marked up by 0.1% and the unemployment rate down by 0.1%.

• Chair Powell's Press Conference:

  • Powell emphasized data dependence and acknowledged the risks of persistent inflation.
  • He highlighted uncertainty around the economic impact of tariffs and fiscal policies under Trump, suggesting incomplete tariff-related assumptions in the Fed's projections.

Conclusion:

BofA maintains its forecast for two more Fed rate cuts in 2025 but recognizes that the balance of risks has shifted toward fewer or no cuts. The Fed’s cautious stance reflects heightened inflation concerns, a resilient economy, and significant uncertainty regarding fiscal and trade policies.