The financial institution’s outlook “assumes that the current forward curve will materialize.” The answer that Wall Street is expecting.
The anguish in Wall Street on how much it will reduce the Federal Reserve interest rates this year were revealed in the latest results of Bank of America Corp.
The latest survey from the New York giant showed that it expects the Fed to lower rates by a quarter point at the monetary policy meetings of September, November and December.
On the other hand, Bank of America’s chief economist, Michael Gapenforecast a single 25 basis point reduction in DecemberHowever, after US June inflation data was released last week and turned out to be lower than expected, he said “risks are tilted towards an earlier start date.”
What will the Fed do with the rate?
Financial forecasts often include assumptions about what the Fed will do, and it is common to rely on what is embedded in derivative contracts. Through July, those market-implied probabilities have tilted in favor of two Fed rate cuts this year beginning in September, and a roughly 50% chance of a third cut by the end of the year.
Tuesday’s results highlighted the variation that exists even within a single firm. Economists and researchers at banks are in a different line of work, advising clients on how to potentially profit if the market turns out to be wrong.
Jerome Powell.webp
The split within Bank of America stands out because Gapen’s forecast is one of the least optimistic by an economist at a major U.S. bank. Forecasts for a single quarter-point cut this year, coming as late as December, were more common until recently. Gapen was not immediately available for comment.
Since April, that forecast has been abandoned by Barclays, BNP Paribas, Deutsche Bank and JPMorganwith economists at all those banks adopting more market-aligned views.
Bank of America management’s outlook “assumes the current forward curve will materialize,” Chief Financial Officer Alastair Borthwick said during the earnings call.
Source: Ambito
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