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Federal Reserve stops rate cuts amid strong labor market- Bank of America

Posted on January 13, 2025 |

Bank of America analysts said the Federal Reserve has stopped cutting rates because of a stronger economy and labor market.

The Labor Department showed payrolls grew by 256,000 in December, up from 212,000 in November, beating the forecast of 155,000. The unemployment rate also dropped to 4.1% from 4.2%.

Bank of America suggested the focus might shift to rate hikes if inflation exceeds 3% annually and long-term inflation expectations rise.

The Federal Reserve reduced rates by 100 basis points last year through three cuts, but predictions for more cuts this year have been reduced.

Wall Street now expects only one rate cut this year, likely in the third quarter, as chances for additional cuts decrease.

Lower expectations for rate cuts caused the 10-year Treasury yield to rise 8 basis points to 4.76%, the highest since November 2023, and stock prices fell.

Wage inflation remains higher than price inflation, giving consumers more purchasing power to support the economy, even if hiring slows.