Going against the market trend! Bank of America: The Fed will only cut interest rates once this year

Economists at Bank of America expect the Federal Reserve to keep policy rates unchanged in July, while indicating progress in reducing inflation.

In a statement, the bank's economists said that the Fed is optimistic about the possibility of a rate cut in the near term, but is unlikely to signal that a rate cut in September is a done deal.

They noted, "A rate cut in September is possible, but it depends on the data. This is the overall tone of most FOMC members who have recently made public remarks. While the inflation data is encouraging, more evidence is needed before starting the normalization of policy rates."

Bank of America also believes that Fed Chair Powell will indicate a shift in focus from solely focusing on inflation to a more balanced approach. Previously, due to inflation being far from target while employment was closer to target, the Fed prioritized inflation.

The bank stated, "Now, with both inflation and employment deviations from targets being relatively small, the Fed's attention can be more balanced. Rate cuts could be due to economic cooling, inflation slowdown, or a combination of both."

Although the market expects the Fed to start cutting rates in September and cut rates about 2.5 times this year, the Fed may not need to strongly support a rate cut in September. Bank of America economists point out that the more pressing issue is whether it will go against market expectations.

They wrote, "Even if the market rebounds due to rate cut expectations, we believe it will be moderate. After all, Powell has indicated that the committee will still rely on data and make decisions based on successive meetings."

Economists point out that at the end of August's Jackson Hole Symposium, Powell will once again have the opportunity to confirm or refute market pricing.

Overall, Bank of America still believes the Fed will cut rates once in December this year, while not too concerned about the risk of a significant economic slowdown. Economists said, "We believe the market is becoming overly optimistic about the upcoming rate cut cycle."

However, they also acknowledge that a rate cut in September is now closer to their baseline expectation. They said, "The Fed's dovish stance, a soft July jobs report, or a repeat of June's inflation data could change our minds. On the other hand, a strong July jobs report, imbalanced inflation data, along with second-quarter GDP data above consensus, could lead the Fed to postpone rate cuts until after September."

Obermeyer Asset Management also expects the Fed not to cut rates before September. John Stoltzfus, the company's Managing Director and Chief Investment Strategist, believes it is an uncertain period as many highly leveraged investors are hoping for rate cuts, but the Fed has not yet decided on rate cuts