Much like everyone else, BofA does expect the Fed to deliver another 25 bps rate cut this week. On the decision itself, the firm highlights possible dissents with Miran likely to stick with a 50 bps rate cut call and one potential hawkish dissent from either Goolsbee or Schmid. But in looking to December, it's all about seeking guidance from Fed chair Powell's press conference. BofA notes that:
"Powell is unlikely to offer much guidance beyond this meeting given the lack of official sector data and the current labour-consumption conundrum. Powell will probably get asked about the dichotomy between the consumer and labor data, a topic that Waller addressed in his latest speech and we delved into recently. We suspect Powell will not take a strong view as even Waller seemed confounded and slightly less supportive of a December cut than he was a few weeks prior. Markets' interpretation of Powell's comments on this issue will depend on how willing he is to lean into consumer strength as an indication that the labor market will stabilise."
BofA also says that the government shutdown is making things tough for the Fed, with policymakers having no official data to rely on and to work with. The firm argues that last week's inflation data was "benign" at best and that might put off Powell from committing to another rate cut in December. In that lieu, BofA says that it is "doubtful" that Powell will be explicit about another rate cut after this and as such "we're really not going to get much out of this meeting at the end of the day".
The firm sees the Fed skipping a rate cut in December as consumption activity holds up, before resuming rate cuts next year in June, September, and December 2026.
