Key Points
- Bank of America altered its forecast of no rate cuts this year to now seeing two quarter percentage point moves.
- In addition, the bank sees the Fed lowering another three times in 2026.
Weak payrolls growth in August has caused Bank of America to change its expectations on interest rates and it now sees the Federal Reserve launching into action. Following news Friday that the U.S. economy added just 22,000 jobs last month, BofA altered its forecast of no rate cuts this year to now seeing two quarter percentage point moves. In addition, the bank sees the Fed lowering another three times in 2026. “The August jobs report is likely to amplify the Fed’s concerns about labor market weakness,” Bank of America economist Aditya Bhave wrote in a note. “There is now clearer evidence of deterioration in labor demand, not just supply.” Bhave said he figures the Fed will cut at its meeting on Sept. 17-18, and again in December. Concerns about elevated inflation likely will put off a reduction in October. In addition, the economist said he doesn’t expect Fed Chair Jerome Powell to push for additional reductions before his term ends in May 2026. Along with the weak jobs report, Powell’s speech last mont h in Jackson Hole, Wyoming, also influenced the change in BofA’s position. At the Fed’s annual conclave, Powell said current economic conditions “may warrant” a change in policy after the central bank has left rates unchanged since last cutting in December 2024. “The Fed has so far been more worried about inflation than the labor market. But Powell’s speech indicated a potential regime shift toward prioritizing the labor market,” Bhave said. “Today’s jobs data should cement that shift.” Even with the Friday change in its forecast, BofA is still less dovish than the market. Traders see three cuts this year, with a slight possibility the Fed even reduces by half a percentage point this month.
