No Rate Cuts in Sight: Bank of America Predicts Fed Will Hold Firm in 2025

Despite earlier optimism, it sees that the chances of more rate cuts in 2025 are becoming less likely.

Despite Wall Street’s hopes, stubborn inflation, a resilient labor market, and growing federal debt make any easing of monetary policy unlikely. Bank of America economist Stephen Juneau predicts rates will hold steady, citing steady economic activity and inflation well above the Fed’s 2% target.

Recent data underscores the challenge. December’s producer price index (PPI) rose 0.3%, with annual core inflation hitting 3.5%, its highest since early 2023. The consumer price index (CPI) followed suit, signaling persistent price pressures. Meanwhile, the labor market added 256,000 jobs in December, pushing unemployment to just 4.1%, complicating the Fed’s dual mandate of controlling inflation while maintaining full employment.

Adding to the mix, the federal government’s debt crisis looms large. With a first-quarter deficit of $710.9 billion—a 39% jump from last year—and the national debt surpassing $36 trillion, rising interest costs are straining finances. Treasury yields are climbing, with the 10-year note hitting 4.8%, further increasing borrowing costs.

The Fed’s balancing act is clear: rate cuts risk reigniting inflation, while rising debt and spending make fiscal stability more challenging. For now, the central bank is expected to hold its course, prioritizing economic stability in the face of mounting pressures.