Bank of America expects Fed to cut rates by 75 basis points in 2025 if US economy weakens

Bank of America (BofA) economists Aditya Bhave and Shruti Mishra have shared two possible directions for the US Federal Reserve's (Fed) monetary policy in 2025.

They expect the central bank to keep interest rates unchanged if the labor market holds up and inflation rises, driven by Donald Trump’s tariffs. This is the experts’ base-case scenario for now. 

However, in case of a significant weakening of the US economy, which could happen before the end of the summer, the Fed could move to reducing borrowing costs by 75 basis points.

According to analysts at BofA, the regulator's median forecast of two rate cuts by year-end is unrealistic. They believe this scenario suggests moderate price growth and a modest cooling of the labor market, rather than its significant weakening.

Fed Chairman Jerome Powell noted during his testimony before the US Congress that the central bank intends to keep borrowing costs on hold until the tariffs’ impact on inflation emerges.

Meanwhile, a weakening labor market could hit the US economy in the coming months in case of a prolonged Fed pause, says MarketWatch.