Investing.com -- Bank of America strategists expect the Federal Reserve to cut the target range for the fed funds rate by 25 basis points to 4.25%-4.5% at its December meeting.
With markets already pricing in nearly a full rate cut, attention will likely focus on the Fed’s communication regarding its future policy direction.
BofA expects both the Summary of Economic Projections (SEP) and Chair Jerome Powell’s remarks at the press conference to signal a slower pace of cuts ahead, potentially indicating a pause in January if economic data aligns with expectations.
The FOMC statement language is likely to remain largely unchanged, despite recent signs of stalled progress on inflation.
BofA points out that the recent inflation surprises have been concentrated in goods sectors, particularly new and used cars, which the Fed may view as temporary.
Housing inflation, meanwhile, appears to have stabilized at levels consistent with the Fed's 2% target, and November PCE inflation is expected to remain subdued based on CPI and PPI trends.
Within the SEP, BofA notes the focus will be on the 2025 median dot plot. In September, the median projection indicated 100 basis points of rate cuts in 2025. Given the stickiness of inflation and resilient economic activity, the bank’s strategists believe the median will move higher, signaling fewer cuts.
“Despite this recent stickiness, we expect the median dots to show three cuts in 2025, two in 2026 and none in 2027. This would move the policy rate path from 2025 onwards up by 25bp, relative to the September dots,” strategists led by Mark Cabana said in a note.
Recent commentary from Fed officials also suggests a reassessment of the neutral rate. Strategists anticipate the longer-run median rate will increase by 25 basis points to 3.125%.