Bank of America anticipates that the U.S. economy will steer clear of a recession in 2025 and does not expect any Federal Reserve interest rate cuts throughout the year, despite mounting political and market turbulence.
In a note released Monday, BofA analysts stated, “These developments go in line with our view that the US economy will avoid a recession and the Fed will not cut this year.”
Although markets have been hoping for a more dovish Fed stance, BofA points to solid consumer spending and persistent goods inflation as indicators of ongoing economic strength.
The analysts emphasized that recent inflation and retail figures surprised on the upside. “Goods inflation is picking up and consumer spending remains robust,” they noted, highlighting that the June retail sales control group increased by 0.5% month-over-month, while food services grew 0.6%.
The bank also cautioned against cutting rates for political reasons. Referring to President Trump’s criticism of Fed Chair Jerome Powell, BofA said, “Cutting rates to help finance the government deficit is we think probably one of the worst reasons to cut rates.”
“This unnecessary politically driven noise raises the bar for cuts,” they added.
BofA warned that easing policy too soon could have unintended consequences, such as “backfire and end up bear steepening the yield curve… while de-anchoring inflation expectations, weakening the dollar, and increasing credit risk.”
Looking forward, the bank expects a slight increase in jobless claims for the week ending July 19 and stable housing data. Durable goods orders, scheduled for release on Friday, are projected to decline 11% month-over-month.
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