Bank of America strategists now expect the Federal Reserve to hold off on cutting interest rates in 2025. They point to slower-than-anticipated job growth and a steadily rising unemployment rate—which they project will reach about 4.4% by the end of the year—as key reasons why there is little justification for easing monetary policy.
Additionally, rising tariffs may exert upward pressure on consumer prices, while core inflation is anticipated to approach 3% this summer. Taken together, these factors make it likely the Fed will maintain its policy rate in the 4.25–4.50% range through at least the coming year.
The strategists’ view hinges on several economic indicators. Slower job creation reduces the urgency for rate cuts by lessening the risk of overheating, while a creeping unemployment rate suggests the labor market is rebalancing without severe weakness. At the same time, elevated core inflation and potential cost increases from tariffs limit the Federal Reserve’s flexibility to ease monetary conditions.
For consumers and businesses, that outlook implies borrowing costs could remain elevated for an extended period. Mortgage rates, credit card APRs and loan pricing are typically influenced by the Fed’s policy stance, so firms and households may face higher financing costs than previously expected if the central bank stays on hold.
Investors will likely monitor incoming inflation and labor market data closely. Any surprises—such as a sharper slowdown in inflation or a more pronounced rise in unemployment—could alter the timeline for policy adjustments. But based on the current assessment from Bank of America, the balance of risks suggests the Fed will refrain from cutting rates until conditions clearly point to lower inflationary pressure and a weaker labor market.