BofA: No Rate Cuts in 2025, Says Fed Must Resist Political Pressure

• Bank of America expects the Fed to hold rates steady through 2025, citing strong consumer spending and persistent goods inflation as signs of resilience.
• The firm warned that politically motivated rate cuts could damage long-term inflation expectations, especially if seen as caving to White House pressure.
• Fed Governor Christopher Waller is backing a July rate cut, arguing that inflation is near target and the labor market is showing signs of weakness.

The Bank of America is doubling down on its outlook for the U.S. economy. Despite the growing political pressure for Jerome Powell and the rest of the Federal Reserve to lower interest rates, BofA states that to counteract a potential recession, the Fed will likely keep rates steady throughout the year. 

“These developments go in line with our view that the US economy will avoid a recession and the Fed will not cut this year.” BofA analysts wrote on Monday.

The investment firm also highlighted how, despite appearances of softer inflation, goods inflation and consumer spending continue to rise. 

Perhaps in a jab to the White House’s pressure for lower rates, the BofA also criticized this administration's pledges for lower interest rates: “Cutting rates to help finance the government deficit is, we think, probably one of the worst reasons to cut rates.”

The institution also warned that a politically motivated interest rate cut right now could cause long-term inflation to rise higher than short-term, as investors could interpret it as the Fed caving to politics or outside pressure, leading to expectations for higher inflation in the long term.

However, the Bank of America’s analysis goes directly in contrast with market expectations. A recent analysis by Bloomberg believes one to two interest rate cuts could be possible after September. Meanwhile, prediction platforms like Polymarket are now pricing a possible rate cut after this month’s FOMC meeting.

Adding to that, Federal Reserve Governor Christopher Waller is pushing for a rate cut as soon as July, arguing that inflation is near the Fed’s 2% target and that lower rates could save the labor market from unnecessary deterioration. 

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