The Federal Reserve is expected to cut interest rates at its meeting next week, but Bank of America says Chairman Jerome Powell will face the most divided committee in years.
The Federal Reserve is expected to reduce interest rates by 25 basis points to a range of 3.5%-3.75% at next week’s meeting, but Bank of America says Chair Jerome Powell faces the most divided committee in years.
“We expect him to try to deliver a hawkish cut as a compromise,” BofA strategists led by Mark Cabana said in a Thursday note. “We’re skeptical about whether he will be able to pull this off. But for now, markets are giving him the benefit of the doubt,” they added.
Markets are still pricing only modest easing beyond December, expecting just 8 basis points of potential cuts in January and only around 25 basis points in the first three meetings
of next year.
BofA expects two significant changes in the Federal Open Market Committee (FOMC) statement. Notably, the policymakers are likely to acknowledge the recent rise in unemployment by dropping the claim that the jobless rate “remained low,” while also signaling that the threshold for future cuts has risen.
The bank expects three dissents and sees Powell attempting to strike a firm tone even as the Fed eases policy. Specifically, it looks for two hawkish dissents and one from a policymaker who wanted a larger 50 bp move.