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Investing.com - Bank of America has revised its Federal Reserve forecast to include two 25-basis-point interest rate cuts in 2025, specifically in September and December, following concerning labor market data. This forecast comes as the S&P 500, tracked by SPY, trades near its 52-week high of $652.21, with a robust 21.27% return over the past year.
The bank cited the August jobs report as a key factor in its revised outlook, noting "anemic" job growth with nonfarm payrolls adding just 22,000 positions and private payrolls increasing by 38,000. The unemployment rate also rose to 4.3%, while weaker-than-expected hours worked contributed to slower income growth. InvestingPro data shows the market maintaining relatively low volatility with a beta of 1.01, suggesting controlled reaction to economic news.
BofA analysts pointed to clearer evidence of deterioration in labor demand, not just supply issues. While July employment figures were revised upward to 79,000 jobs added, June was revised downward to show a loss of 13,000 jobs.
Despite these labor market concerns, Bank of America does not anticipate a rate cut at the Federal Reserve’s October meeting. The bank expects core PCE inflation to reach 3% in August and continue rising through year-end, which would likely prevent the Fed from cutting rates in consecutive meetings.
The bank also stated it does not forecast any further rate cuts during Jerome Powell’s tenure as Fed Chair, suggesting that by early 2025, there could be sufficient evidence that "the labor market is holding up and inflation is still problematic" for the Fed to pause its cutting cycle.
In other recent news, Goldman Sachs has revised its third-quarter GDP growth forecast downward to 1.6% from the previous 1.7%, citing a widening trade deficit influenced by increased gold imports and imports from China. The firm also continues to see policy news and Federal Reserve speeches as significant market catalysts, following recent volatility. In related developments, Raymond James has identified small cap value as the only investment style trading below its long-term price-to-earnings average, amidst a strong earnings season where eight out of eleven market sectors experienced positive earnings revisions. Meanwhile, Boston Federal Reserve President Susan Collins has advocated for a patient approach to interest rate changes, citing economic uncertainty and the impact of import tariffs on inflation. Citi analyst Chris Montagu has expressed concerns about Nasdaq’s stretched positioning, suggesting potential risks for profit-taking in the near term. These developments reflect a complex economic landscape with varied implications for investors.
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