On Thursday, Bank of America (BofA) revised its forecast for the Federal Reserve's monetary policy, indicating a shift in expectations for interest rate cuts. The financial institution now anticipates that the Fed will begin reducing rates in December 2024, a delay from its previous estimate of June 2024.
According to BofA, the change in forecast is based on the belief that policymakers will not gain the necessary confidence to initiate rate cuts by mid-year. The comparison to 2015 was made, noting that while the Fed at that time signaled hikes that did not materialize, the current situation may involve signaling cuts that are not supported by inflation data.
BofA maintains its projection that the Fed will implement a total of four rate cuts, equivalent to 100 basis points (bp), in 2025. Moreover, the financial institution expects two more reductions, totaling 50bp, to occur in 2026.
The updated forecast by BofA reflects a cautious stance on the central bank's future actions regarding interest rates. This outlook is informed by economic indicators and the institution's analysis of inflation trends, which appear to be a key factor in the Fed's decision-making process.
The announcement from BofA provides insight into the evolving expectations of financial institutions regarding the Fed's interest rate trajectory. Market participants and observers often monitor such forecasts to gauge potential shifts in monetary policy and their implications for the economy.
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