The most aggressive Wall Street investment bank: "There will be no more rate cuts" during Powell's term

Bank of America believes that there may not be any further interest rate cuts during Federal Reserve Chairman Jerome Powell's term.

According to Wind Trading Desk, Bank of America released one of the most aggressive forecasts on Wall Street, stating that the FOMC will not lower interest rates again during Powell's tenure, which sharply contrasts with the market's general expectation of a rate cut in December.

The backdrop of this bold prediction is that although the Federal Reserve cut rates in October, Powell himself immediately made cautious remarks, stating that a further rate cut in December is "far from a done deal." Meanwhile, the ongoing government shutdown in the U.S. has delayed the release of key economic data, leaving the Federal Reserve and investors in a decision-making "fog."

In this "data vacuum," market focus has been forced to shift to various alternative data. Bank of America's analysis shows that this data paints a complex but not pessimistic picture: the labor market is gradually cooling, but there are no signs of a sharp deterioration. This situation provides the Federal Reserve with a reason to pause rate cuts and forms the basis for Bank of America's hawkish prediction.

Decision-Making Fog in a Data Vacuum

Currently, the absence of official data due to the government shutdown is becoming the biggest uncertainty affecting Federal Reserve decisions and market expectations. The October CPI, PPI, and retail sales data, which were supposed to be released next week, will be absent, leaving the Federal Reserve lacking the most direct inflation and consumption guidance before the December meeting.

Chairman Powell used the metaphor "driving in the fog requires slowing down" during the October press conference to vividly describe the current policy situation. He also specifically mentioned that if no more official data is released before the December meeting and alternative data remains robust, then a pause in action would be "a strong reason." Bank of America believes this means that the threshold for initiating a rate cut in December has been raised, requiring data to "prove" its justification rather than "refute" its necessity.

Recent statements from Federal Reserve officials also echo this cautious sentiment. Bank of America's report summarizes that officials' communications are "slightly leaning hawkish." Several officials, including Goolsbee, Hammack, Logan, and Schmid, have expressed concerns about inflation or reservations about further rate cuts, while relatively dovish officials like Daly and Cook have not explicitly committed to supporting a rate cut in December.

Alternative Data Depicts the Full Picture of the Labor Market

In the absence of official data, alternative data has become key to understanding the pulse of the U.S. economy. Bank of America analyzes through its constructed "alternative labor data heat map" that the U.S. labor market is in a "low turnover" state, with market slack "gradually increasing," but not collapsing.

• Recruitment remains weak: Data shows that the job market is still challenging for job seekers. According to the report, the Chicago Fed's estimated hiring rate has declined for the sixth consecutive month in October, while Challenger's data indicates that the total number of corporate hiring plans during the peak seasons of September and October this year is far below the same period last year.

• Layoff scale is controllable: Weak recruitment is offset by extremely low layoff rates. Although large-scale layoff announcements from companies like Amazon and UPS once triggered market panic, Bank of America believes this may just be a "one-time event." A more important indicator - the number of initial jobless claims - is still far from a concerning level. Internal data from the bank shows that the number of families receiving unemployment benefits increased by about 10% year-on-year in October, with the growth rate slightly slowing compared to September, indicating that unemployment has not accelerated.

• Marginal easing of wage pressure: Wage inflation, as a lagging indicator of labor supply and demand balance, also shows signs of cooling. ADP data indicates that wage growth for job switchers has significantly slowed, while Indeed's wage tracking index continues to decelerate.

Bank of America believes that the unemployment rate will be a decisive factor in the Federal Reserve's decision-making. The bank's rule of thumb is that if the unemployment rate remains at 4.3% or below, or only rises very slowly, the Federal Reserve is unlikely to cut rates further. Only if the unemployment rate reaches 4.5% in the coming months could it pave the way for at least one more rate cut.

Hawkish voices grow stronger, Federal Reserve turns cautious

Bank of America's report summarizes the speeches of several Federal Reserve officials over the past week, concluding that the communication tone is "slightly hawkish." This provides strong support for the bank's judgment of "pausing rate cuts."

Cleveland Fed's Hammack stated bluntly that he is "still concerned about high inflation" and believes inflation will not return to the 2% target until one or two years after 2026. Chicago Fed's Goolsbee also expressed feeling "nervous" about inflation. Dallas Fed's Logan and Kansas City Fed's Schmid are both skeptical about another rate cut in December, with the latter believing that the labor market is "basically balanced" and inflation "still too high."

Notably, even San Francisco Fed President Daly, who is seen as dovish, did not make statements as dovish as the market expected. Governors Cook and Barr, while slightly dovish, also seem to have made no commitments regarding a rate cut in December. This cautious collective shift has weakened market expectations for consecutive rate cuts by the Federal Reserve.

Based on an analysis of the current economic and policy environment, Bank of America has updated its core economic forecasts, with an overall tone more hawkish than mainstream market views.

• Federal Reserve policy: No further rate cuts are expected during Powell's tenure. The federal funds rate is expected to remain in the range of 3.75-4.0% until the end of 2025, with rate cuts potentially beginning under a new chair in the second half of 2026, expected to total 75 basis points in three cuts, ultimately reaching a rate of 3.00-3.25%.

• Inflation: Due to input pressures from tariffs, inflation will remain high. The bank forecasts that the year-on-year growth rate of the core Personal Consumption Expenditures (PCE) price index will hover around 3% from the fourth quarter of 2025 to the second quarter of 2026.

• Labor market: The employment market is expected to moderate, with the unemployment rate rising by only about 0.1 percentage points each quarter, reaching 4.4% in the fourth quarter of 2025, and peaking at 4.5% in the first to third quarters of 2026.

• Economic growth: A "constructive" view of the U.S. economy is maintained. As uncertainty decreases and fiscal stimulus takes effect, economic growth is expected to continue trending toward its potential level, with a full-year growth forecast of 1.8% for 2025