Bank of America says Fed unlikely to cut rates this year

Bank of America economists wrote in a recent research note that the Federal Reserve is unlikely to cut interest rates this year, pointing to persistent inflation and a still-tight labor market.

The team pointed to continuing strength in services inflation, steady wage growth and robust consumer spending. Core inflation measures that exclude volatile food and energy components remain above the Fed's 2% target, the note said.

On the labor market, the economists highlighted that hiring and wage trends have not shown enough cooling to give policymakers confidence to reduce the federal funds rate.

The report contrasted that outlook with investor expectations that cuts could come later in the year and argued markets may be pricing reductions too quickly given current data.

Bank of America outlined possible effects if policy stays tighter for longer: short-term Treasury yields could remain elevated, borrowing costs for households and businesses would stay higher, and mortgage and corporate loan rates could limit refinancing activity.

The note identified core inflation readings, employment gains and wage trends as the indicators the Fed will watch before moving to cut rates, saying those measures must show sustained improvement.

Federal Reserve officials continue to describe policy as data-dependent. The central bank raised rates sharply last year; while headline inflation has moderated, core measures have been more persistent.

Bank of America's view adds to a split among economists and investors. Some forecasters still expect cuts if inflation cools further, while others have pushed back projected timelines as wage and services-price data remain elevated.