Bank of America expects the Fed to start reducing in December:
- Inflation is expected to remain above the Fed's 2% target until 2026 due to strong labor demand and increased consumer spending.
- Expectations are that the Fed will start easing interest rates in December 2024, with quarterly cuts continuing to reach a final rate of 3.5-3.75% by 2026.
- One of the main risks identified is that inflation may remain stable, necessitating the Fed to keep interest rates higher for a longer period than expected, as high interest rates for a prolonged period of time are expected to be a difficult period for bond prices, which are usually inversely correlated with interest rates.
- Higher interest rates in the United States compared to other economies are likely to keep the dollar strong, Geopolitical risks and economic uncertainties in other regions such as Europe and China are contributing to the strengthening of the dollar as a safe haven currency.
