Markets now expect the Federal Reserve to begin cutting interest rates as early as September. Traders have almost fully priced in a 25 basis point cut, with further easing likely in October and December, according to the CME FedWatch Tool.
“Recent U.S. economic data have prompted us to revise our rate forecasts lower,” BofA said, citing signs of a cooling labor market. “Recent weakness in employment data, slowing job growth, and other signs of labor market slack could prompt the Fed to change its risk assessment.”
The bank also said political pressure on the Fed, including criticism from President Donald Trump, could continue to weigh on the dollar.
“The risks to the Fed’s independence are well recognized, but now markets must also factor in the implications of institutional weakness at statistical agencies,” the analysts stressed.
“Recent U.S. economic data have prompted us to revise our rate forecasts lower,” BofA said, citing signs of a cooling labor market. “Recent weakness in employment data, slowing job growth, and other signs of labor market slack could prompt the Fed to change its risk assessment.”
The bank also said political pressure on the Fed, including criticism from President Donald Trump, could continue to weigh on the dollar.
“The risks to the Fed’s independence are well recognized, but now markets must also factor in the implications of institutional weakness at statistical agencies,” the analysts stressed.
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“If inflation data persists, forcing the Fed to be more hawkish in adjusting easing expectations, the USD could see a short-term rally. However, we believe this phenomenon will be temporary,”
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