Brian Moynihan, CEO of Bank of America, recently highlighted significant predictions for the U.S. Federal Reserve’s (Fed) approach to interest rates. Speaking on behalf of the bank’s economists, Moynihan stated that no interest rate reductions are expected for the current year. The Fed’s hesitancy is attributed to ongoing inflationary challenges and the solid performance of the U.S. economy.
What Will Influence Fed’s Rate Decisions?
Delving into the factors influencing these expectations, Moynihan emphasized that the Fed is unlikely to make hasty interest rate cuts. As stated during a CNBC interview, the bank’s economists firmly believe that the U.S. economy will not slip into a recession through the end of 2025. They project modest growth, ranging between 1 and 1.5 percent for the year. Consequently, they surmise that inflation remains above target, postponing potential rate reductions until 2026.
Brian Moynihan: “Our economists believe there will be no recession. They expect the U.S. economy to grow between 1 to 1.5 percent this year. Due to prolonged high inflation, Fed will not reduce interest rates in 2025; instead, such measures might be considered in 2026.”
Can Consumer Trends Signal Economic Health?
Yes, Moynihan pointed out that consumer spending soared by over 5 percent between July 2024 and July 2025, marking significant economic resilience. Despite a 30 percent drop in personal credit line usage since pre-COVID times, consumer creditworthiness remains robust. The labor market also reflects stability, with unemployment rates around 4.2 percent, signaling full employment.
Brian Moynihan: “Comparing July 2025 with July 2024, our customers contributed more than 5 percent to the economy. The credit quality of our client base is solid, which is true for the industry as well. Mortgage borrowing remains 30 percent below pre-pandemic levels, with home prices increasing. There is capacity. The U.S. unemployment rate is around 4.2 percent, indicating a full employment scenario.”
Are Market Expectations Aligned with Bank Predictions?
No, there is a notable discrepancy between market sentiment and Bank of America’s projections. The CME Group’s FedWatch Tool points to a 91.2 percent likelihood of a 25 basis point rate cut by September’s Federal Open Market Committee meeting. This comes as recent employment data, showing a shortfall in job creation, has spurred speculation about an earlier-than-anticipated rate reduction.
Recent employment figures revealed a 73,000 increase in non-farm payrolls for July, significantly below Dow Jones’ forecast of 100,000. Such data further fuels market speculations that the Fed might reconsider its current rate stance sooner than suggested by Bank of America’s forecasts.
Taking into account these insights, it is clear that:
- Bank of America anticipates continuous economic growth with above-target inflation levels.
- Fed’s rate cut is seen as likely postponed until 2026 by the bank’s economists.
- Market indicators suggest a possible rate cut in September, contrary to Bank of America’s predictions.
- Consumer spending and employment trends underscore economic resilience.
As the Fed’s next moves are meticulously watched, Bank of America’s prognosis suggests a prudent path, while contrasting market expectations foresee possible earlier rate cuts. The dynamics between these views will be closely observed in the coming months as developments unfold.
