Fed Rate Expectations By Bank of America
Investing.com — Bank of America strategists expect the Federal Reserve to cut the target range for the fed funds rate by 25 basis points to 4.25%-4.5% at its December meeting.
As markets anticipate a full rate cut, all eyes will be on the Fed’s communication about future policy directions. BofA forecasts both the Summary of Economic Projections (SEP) and Chair Jerome Powell’s remarks during the press conference to indicate a slower pace of cuts ahead, potentially hinting at a pause in January if the economic data aligns with expectations.
The FOMC statement language is likely to remain largely unchanged, despite recent signs of stalled progress on inflation. BofA highlights that recent inflation surprises have been focused on goods sectors, particularly new and used cars, which may be regarded by the Fed as temporary.
Housing inflation seems to have stabilized at levels consistent with the Fed's 2% target. November PCE inflation is expected to remain subdued based on CPI and PPI trends.
Summary of Economic Projections (SEP)
Within the SEP, BofA emphasizes the importance of the 2025 median dot plot. In September, the median projection signaled 100 basis points of rate cuts for 2025. Given the persistent inflation and resilient economic activity, strategists believe that this median will rise, signifying fewer cuts.
Despite recent stickiness, they expect the median dots to reflect three cuts in 2025, two in 2026, and none in 2027. This adjustment would raise the policy rate path from 2025 onwards by 25 basis points compared to the September dots, according to strategists led by Mark Cabana.
Recent Fed commentary also implies a reevaluation of the neutral rate, anticipating the longer-run median rate to increase by 25 basis points to 3.125%.
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