Bank of America doubles down on its call that the Fed cutting cycle is over

Investing.com -- Bank of America is reinforcing its stance that the Federal Reserve’s rate-cutting cycle is over, following the central bank’s latest policy meeting.

As widely expected, the Fed left the rates unchanged, while the Federal Open Market Committee’s (FOMC) statement leaned slightly hawkish. The statement removed prior language suggesting inflation had made progress toward the 2% target, which BofA described as a “modest hawkish surprise.”

Moreover, the Fed emphasized that the labor market remains “solid” and that the unemployment rate has “stabilized.”

During his press conference, Chair Jerome Powell stated that the policy is “well positioned” and “in a really good place.” BofA strategists believe this indicates that a March cut is not Powell’s base case, adding that “it makes sense for the Fed to retain maximal optionality.”

“On the flip side, Powell argued that policy is still meaningfully above neutral,” strategists continued. “The question is whether a base effects story will convince the Fed that we are "really making progress" on inflation, as Powell said he’d like to see.”

Overall, the latest FOMC provided little new information, which BofA believes was likely intentional.

The fact that a March cut does not appear to be the Fed’s base case reinforces its view that the cutting cycle is over, “since the Fed rarely moves at slower than a quarterly cadence in either direction.”

At the same time, they acknowledged that the Fed’s emphasis on 12-month inflation leaves the door open for potential cuts.

Market reactions were relatively muted, with US rates initially rising after the statement before reversing during Powell’s remarks.

The US dollar also saw little movement, with Powell downplaying the significance of the inflation language changes in the statement.