Bank of America believes the Fed will cut rates first in December, but acknowledged that much of what happens next could depend on Thursday’s inflation report. The market is pricing in a 19 basis point cut at the September FOMC meeting and 50.6 basis points by year-end.
In this report, Bank of America expects a modest increase in both the headline and core CPI, which should be helpful to the Federal Reserve.
the main points:
- Consumer Price Index Headlines: It is expected to rise 0.1% on a monthly basis (0.11% unrounded) due to another drop in energy prices, resulting in an annual rate of 3.2% and the NSA index at 314.770.
- Core Consumer Price Index: It is expected to rise by 0.2% on a monthly basis (0.24% unrounded). Although this is slightly higher than in May, it is still a positive result for the Fed.
- Fed Rate Cuts: If the CPI report comes in line with these expectations, Bank of America maintains its expectation that the Fed will begin its rate-cutting cycle in December. However, the continued 0.2% month-over-month increase in core CPI could tilt the risk toward an early rate cut, especially with signs of weakening economic activity.
Conclusion:
Bank of America expects the June CPI report to show modest increases in both headline and core, reinforcing positive trends from May. This would support the Fed’s current policy path, with a possible rate cut starting in December unless continued weakness in core CPI data signals an early intervention.
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