(Bloomberg) — Economists at Deutsche Bank AG and Bank of America Corp. joined the growing crowd of forecasters who are dialing back expectations for US interest-rate cuts after the consumer-price index rose at a faster-than-expected pace for a third straight month.
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US strategists at Deutsche Bank and Bank of America now predict that the Federal Reserve will ease policy just once this year, in December. That’s a sharp reduction in previous forecasts from both firms, which each previously saw the Federal Reserve beginning to ease policy starting in June.
Such recalibration is occurring across Wall Street after inflation figures Wednesday strengthened conviction that the Fed will hold steady until it sees signs that consumer-price increases are pulling closer to its 2% annual target. The data, following other releases showing strength in the economy, caused US bond yields to jump sharply and led futures traders to doubt whether the Fed will even cut rates twice this year.
“Recent developments – namely, upside inflation prints, solid labor market data, and easing financial conditions – have clearly diminished the case for commencing rate cuts,” Deutsche Bank’s Matthew Luzzetti and his team wrote in a Thursday note describing their forecast change.
Deutsche Bank had previously argued the Fed would need to see one key inflation gauge, the core personal consumption expenditures price index, abate in the coming months in order to gain the confidence needed to ease monetary policy.
Now, the bank’s forecast sees that measure coming in at 0.3% per month in March and April, high enough to fan worries about inflation. “If these data are realized, it is unlikely that inflation data alone would justify a cut at the July meeting,” the economists wrote.
Bank of America’s economists, meanwhile, similarly expect the core PCE measure to come in at 0.25% in March and April.
“This will make a cut as early as June or September unlikely absent clear signs of labor market deterioration,” Michael Gapen and his team wrote Thursday. “The acceleration of inflation this year makes a cut prior to December challenging in our view.”
Luzzetti and Deutsche Bank’s economics team see the Fed cutting rates twice in the first half of 2025 and then pausing until 2026. That’s a split from Bank of America, which continues to expect the central bank to reduce borrowing costs four times in 2025 and another two times in 2026.
(Updates to add Bank of America forecast change.)
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