BofA Global Research Forecast

On Friday, BofA Global Research predicted that the U.S. Federal Reserve would implement two cuts of 25 basis points (bp) each, scheduled for September and December, following a weak jobs report.

BofA was the only Wall Street brokerage to have anticipated no cuts for this year. For 2026, they project an additional 75 basis points in easing.

Recent data showed a significant decline in U.S. job growth for August, with the unemployment rate rising to 4.3%, the highest in nearly four years. This situation confirms a weakening labor market, making a strong case for a rate cut this month.

BofA economists noted: “The August jobs report should cement a shift in the Fed’s thinking from worrying about inflation to focusing on labor weakness.”

However, BofA cautioned that if the labor market deteriorates further, the Fed might decide to cut rates at its October meeting and potentially consider more significant cuts next year.

Morgan Stanley, which forecasts 50 basis points of cuts by year-end, shared a similar outlook: “For the Fed, this probably aligns with a 25 bp cut, but it tilts risks toward 75 bp in cuts by year-end.”

Last month, Fed Chair Jerome Powell indicated that a rate cut was possible at the September 16-17 policy meeting, acknowledging increasing labor market risks, while also warning that inflation remains a factor.

BofA remarked, “The shift in our view is motivated by both the softer labor data and Powell’s reaction function, as stated at Jackson Hole.”

Several global brokerages, including Citigroup, anticipate that the Fed will announce rate cuts in its September meeting.