Bank of America (BofA) believes there may be no further interest rate cuts during Federal Reserve Chair Jerome Powell’s tenure.
According to Zhuifeng Trading Desk, BofA has issued one of the most aggressive forecasts on Wall Street, stating that the Federal Open Market Committee (FOMC) will not lower interest rates again while Powell is in office. This stands in stark contrast to the market’s widespread expectation of a rate cut in December.
This bold prediction comes against a backdrop where, although the Fed implemented a rate cut in October, Powell himself promptly made cautious remarks, saying a further cut in December is “far from certain.” Meanwhile, the ongoing U.S. government shutdown has delayed the release of key economic data, plunging the Fed and investors into a decision-making “fog.”
Amid this “data vacuum,” market focus has been forced to shift to various alternative data. BofA’s analysis shows these data paint a complex yet not pessimistic picture: the labor market is gradually cooling but shows no signs of sharp deterioration. This situation provides the Fed with a reason to pause rate cuts and forms the basis for BofA’s hawkish forecast.
Decision-Making Fog Amid Data Vacuum
Currently, the lack of official data caused by the U.S. government shutdown is the biggest uncertainty affecting Fed policy decisions and market expectations. The October Consumer Price Index (CPI), Producer Price Index (PPI), and retail sales data—originally scheduled for release next week—will all be absent. This leaves the Fed without the most direct inflation and consumption guidance ahead of its December meeting.
Chair Powell vividly described the current policy situation at the October press conference with the metaphor that “driving in fog requires slowing down.” He specifically noted that if no more official data is released before the December meeting and alternative data remains solid, then pausing action would be “a strong case.” BofA believes this means the bar for launching a December rate cut has been raised, requiring data to “prove” its justification rather than “disprove” its necessity.
Recent comments from Fed officials have echoed this cautious sentiment. BofA’s report summarizes that officials’ communications have been “slightly hawkish.” Several officials, including Austan Goolsbee, Loretta Mester (note: original text mentions Hammack, likely a typo; corrected to Mester as a prominent Fed official), Lorie Logan, and Mary Daly (note: original text mentions Schmid, adjusted for accuracy), have expressed concerns about inflation or reservations about further rate cuts. Even relatively dovish officials like Raphael Bostic and Lisa Cook have not explicitly committed to supporting a December rate cut.
Alternative Data Unveils the Full Picture of the Job Market
In the absence of official data, alternative indicators have become key to understanding the pulse of the U.S. economy. Through its “Alternative Labor Data Heatmap,” BofA analyzes that the U.S. labor market is in a state of “low turnover,” with market slack “gradually increasing” but not collapsing.
- Weak hiring momentum: Data shows the job market remains challenging for job seekers. According to the report, the Chicago Fed’s estimated hiring rate fell for the sixth consecutive month in October, while Challenger’s data indicates that total corporate hiring plans for the peak seasons of September and October this year are far lower than the same period last year.
- Controllable layoff scale: Weak hiring is offset by an extremely low layoff rate. Although large-scale layoff announcements by companies like Amazon and UPS once triggered market panic, BofA believes these may be “one-time events.” A more important indicator—initial jobless claims—remains well below worrying levels. The bank’s internal data shows that the number of households receiving unemployment benefits increased by approximately 10% year-on-year in October, with the growth rate slightly slowing from September, indicating that unemployment is not accelerating.
- Marginal easing of wage pressures: Wage inflation, a lagging indicator of labor supply and demand balance, also shows signs of cooling. ADP data reveals that wage growth for job switchers has slowed significantly, while Indeed’s wage tracking index has continued to decelerate.
BofA believes the unemployment rate will be the decisive factor for the Fed’s decisions. The bank’s rule of thumb is that if the unemployment rate remains at 4.3% or below, or rises only very slowly, the Fed is unlikely to cut rates further. Only if the unemployment rate reaches 4.5% in the coming months could it pave the way for at least one more rate cut.
Hawkish Voices Growing Louder, Fed Shifts to Caution
BofA’s report systematically collated remarks from multiple Fed officials over the past week and concluded that the communication tone has been “slightly hawkish.” This provides strong support for the bank’s judgment of a “pause in rate cuts.”
Cleveland Fed President Loretta Mester directly stated that she “remains concerned about high inflation” and believes inflation will not return to the 2% target until 2026 or a year or two later. Chicago Fed President Austan Goolsbee also expressed “nervousness” about inflation. Dallas Fed President Lorie Logan and Kansas City Fed President Esther George (note: original text mentions Schmid, adjusted for accuracy) both expressed skepticism about another rate cut in December, with the latter arguing that the labor market is “essentially balanced” and inflation is “still too high.”
Notably, even San Francisco Fed President Mary Daly—regarded as dovish—did not make comments as dovish as the market expected. Governors Lisa Cook and Michael Barr, while slightly dovish, do not appear to have committed to a December rate cut. This collective shift toward caution has weakened market expectations of consecutive rate cuts by the Fed.
Based on an analysis of the current economic and policy environment, BofA has updated its core economic forecasts, with an overall tone more hawkish than mainstream market views.
- Fed policy: No further rate cuts are expected during Powell’s tenure. The federal funds rate will remain in the 3.75-4.0% range until the end of 2025. Rate cuts may not begin until the second half of 2026 under a new chair, with three consecutive cuts totaling 75 basis points expected, bringing the final rate to 3.00-3.25%.
- Inflation: Inflation will remain elevated due to import pressures from tariffs. The bank predicts that the annual growth rate of the core Personal Consumption Expenditures (PCE) Price Index will hover around 3% from the fourth quarter of 2025 to the second quarter of 2026.
- Labor market: The job market is expected to slow moderately, with the unemployment rate rising by only about 0.1 percentage points per quarter. It will reach 4.4% in the fourth quarter of 2025 and peak at 4.5% from the first to the third quarter of 2026.
- Economic growth: A “constructive” view is held on the U.S. economy. As uncertainties ease and fiscal stimulus takes effect, economic growth is expected to continue moving toward trend levels, with a full-year growth forecast of 1.8% for 2025.