Bank of America: Federal Reserve Unlikely to Cut Interest Rates in 2025

Bank of America strategists now judge that the Federal Reserve is unlikely to begin cutting interest rates in 2025. Their view is driven by a combination of labor market dynamics and inflationary pressures that, in their assessment, do not create a compelling case for loosening monetary policy over the coming year.

The team points to slower-than-expected job growth and a labor market that is gradually cooling. They forecast the unemployment rate to rise to about 4.4% by year-end. While that level is not extreme by historical standards, strategists interpret the trend as a move toward labor market normalization rather than a signal that rapid rate easing is needed to avoid a downturn.

At the same time, inflation dynamics remain a key concern. Bank of America highlights the risk that tariffs could exert upward pressure on consumer prices, and notes that core inflation—the measure that strips out volatile food and energy costs—looks poised to reach roughly 3% this summer. Those factors, combined with sticky services inflation and continued wage pressures, suggest to the strategists that the Fed will be reluctant to lower its policy rate prematurely.

Given these conditions, the strategists expect the Federal Reserve to hold its policy rate in a range near 4.25–4.50% until at least next year. Keeping the funds rate at that level would signal a focus on bringing inflation sustainably back toward the Fed’s longer-run objectives before moving to ease monetary policy.

What this outlook means for markets and households depends on how long rates remain elevated. For consumers, a prolonged period of higher rates typically translates into tighter borrowing conditions: mortgages, auto loans, and credit card rates can stay above the levels seen during years of easier monetary policy. For businesses, higher rates can raise the cost of financing investment, which may temper capital spending plans if financing becomes more expensive or uncertain.

For investors, a stable-to-higher-for-longer interest rate environment can alter return expectations across asset classes. Fixed-income investors may find yields attractive compared with the very low-rate era, while equity investors will watch corporate margins and growth expectations closely. Market pricing and central-bank communications will remain important drivers of near-term volatility as participants weigh incoming economic data against the Fed’s guidance.

Policy decisions by the Federal Reserve will continue to hinge on incoming indicators for inflation, labor markets, and consumer prices. Bank of America’s view underscores how modest shifts in economic data—such as slower job gains or a small uptick in inflation measures due to tariffs—can materially change the expected path of monetary policy.

In short, Bank of America strategists make the case that, given the present mix of slower employment gains, a modestly rising unemployment rate, and persistent inflationary risks, the Federal Reserve has little incentive to begin cutting rates in 2025. Their conclusion is that the policy rate is likely to remain around 4.25–4.50% through at least the next calendar year unless future data produce a clear and sustained move toward lower inflation and a significantly weaker labor market.