Bank of America revised its forecast for the Federal Reserve’s monetary policy, indicating that the cycle of interest rate cuts has come to an end.
“Given a resilient labor market, we now think the Fed cutting cycle is over,” the bank’s US economics team wrote in a note shortly after the jobs report was released.
The new forecast is attributed to the robust December jobs report, which showed a big increase in payrolls, and a slight decrease in the unemployment rate to 4.1%.
BofA economists highlighted the resilience of the labor market as a key factor in its reassessment, suggesting that the economic conditions do not warrant further easing by the Federal Reserve.
The report also noted that inflation remains above the Fed’s target, with the central bank’s own projections for 2025 indicating higher inflation expectations and risks skewed to the upside.
BofA does not anticipate next month’s revisions to significantly influence the Fed’s decisions. The firm believes that the labor market has stabilized after a period of volatility in the summer and early fall, and that the revisions will likely reflect a level-shift down rather than a change in the overall trend.
Economists also noted that both market-based inflation and core PCE have plateaued at levels not in line with the Fed’s targets, thus offering little reassurance for a shift in policy.
“Economic activity is robust. We see little reason for additional easing,” they concluded.
