NextFin news, On November 10, 2025, following the Federal Reserve's recent modest rate cuts in September and October, Bank of America released a notably hawkish forecast stating that the Federal Open Market Committee (FOMC) is unlikely to reduce interest rates further during Chair Jerome Powell’s current tenure, which ends in May 2026. This prediction contrasts with prevailing market expectations anticipating at least one more rate cut by year-end. The forecast emerges amid continuing uncertainty fueled by the protracted U.S. government shutdown that has delayed the release of critical economic indicators such as the October Consumer Price Index (CPI), obscuring inflation and consumer trend signals ahead of the Fed's December meeting.
According to CME Group's FedWatch tool, as of early November 2025, the probability of a 25-basis-point rate cut at the December FOMC session stood around 66.9%, with a 33.1% chance of rates remaining steady. However, Bank of America's analysis of the existing economic data, supplemented by alternative high-frequency indicators due to the data vacuum, suggests the labor market is cooling gradually without sharp deterioration, providing rationale against additional easing. Concurrently, Federal Reserve officials have expressed caution; several regional Fed presidents voiced concerns about persistent inflation risks and the appropriateness of further cuts in the current environment.
Notably, Federal Reserve Chair Powell himself, in a prior press conference dated October 29, 2025, indicated that further rate cuts, particularly in December, are “not a foregone conclusion,” emphasizing a more data-dependent and divided committee stance. Powell acknowledged the scarcity of official data due to the shutdown but pointed to signals of moderating labor market conditions coupled with inflation remaining above target. He underscored the need for caution given the uncertainty about the economic trajectory.
Bank of America's report updates its baseline scenario to a more hawkish interpretation: the federal funds rate is expected to hold within the 3.75%-4.00% corridor through 2025, with a significant rate-lowering cycle postponed until the second half of 2026 following Powell’s departure. They anticipate that a new Fed chair may engineer around three cuts totaling 75 basis points, eventually lowering rates to the 3.00%-3.25% range. This stance marks a departure from the more dovish consensus that priced in near-term easing, reflecting heightened sensitivity to inflation persistence and risks of undermining price stability.
Survey data from the Fed’s recent Financial Stability Report reveals that 61% of market participants now view policy uncertainty as the greatest structural risk to the U.S. financial system, a marked increase from earlier in 2025. Elevated geopolitical concerns and emerging technology-driven market factors, specifically AI-related valuation risks, underscore this nervousness. Furthermore, liquidity constraints in U.S. Treasury markets, driven in part by the Treasury General Account's massive cash draw of over $700 billion amid the government shutdown, have intensified funding stress, evoking comparisons to the repo market dislocations witnessed in 2019.
From a policy perspective, the Fed’s unprecedented identification of “central bank independence” as a potential risk factor can be linked to political pressures seen in 2025, with President Donald Trump's administration exerting influence toward earlier easing and directly targeting Fed governors. This politicization adds a layer of complexity to an already cautious approach.
The overarching implication is that the current Fed policy cycle is characterized by a delicate balancing act: tightening to combat inflation stubbornly above the 2% target, while carefully monitoring a cooling labor market, all under constrained data conditions. Market participants face heightened volatility as the Fed navigates this uncertain environment, with interest rate futures reflecting a more nuanced picture blending cautious easing expectations with hawkish pauses.
Looking ahead, if inflation data stabilizes or worsens once official reporting resumes after the shutdown, the Fed may maintain or even elevate rates to anchor inflation expectations. Conversely, a sharper labor market decline could prompt a reconsideration of rate cuts, though likely post-May 2026 under new leadership. Investors and policymakers alike must contend with an evolving geopolitical landscape, financial stability concerns, and the innovation-driven economic transformation centered around AI investments, which remain relatively interest-rate insensitive according to Powell, further complicating traditional policy transmission.
In conclusion, Bank of America’s prognosis that Powell will not cut rates further through his tenure highlights how the Fed’s future decisions hinge critically on incoming data and political-economic dynamics. This signals a sustained period of vigilance in monetary policy, with significant implications for borrowing costs, market liquidity, and economic growth prospects in the U.S. and globally during late 2025 and into 2026.
According to futunn.com, this scenario demands investors recalibrate expectations for the timing and magnitude of Fed easing, emphasizing risk management amid policy uncertainty and an uneven global recovery.
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