Economists at Bank of America, Citigroup and Goldman Sachs Group lowered their forecasts for additional interest rate cuts from the Federal Reserve in response to stronger-than-expected US December employment data released on Friday.
Bank of America, which previously expected two quarter-point reductions this year, no longer expects any, and said there is a risk that the next step will be an increase. Citigroup, whose rate cut outlook is among the most optimistic on Wall Street, still expects five quarter-point cuts but says they will begin in May, down from January previously. Goldman Sachs sees two cuts this year versus three.
“Following a very strong December employment report, we believe the cut cycle is over,” wrote Bank of America economists led by Aditya Bhave. “The conversation should shift to hikes” in the event that inflation, as measured by the annual growth rate of the price index of basic personal consumption expenditures, exceeds 3% and inflation expectations shift upward, they wrote.
Since September, the Federal Reserve has reduced its target range for the interest rate on overnight loans in the United States by a total of 100 basis points, to 4.25%-4.5%.
At Citigroup, economists led by Andrew Hollenhorst and Veronica Clark said in a note that “They are not particularly worried about scenarios in which the Fed does not cut this year or consider increases.”
Although employment “is holding up better than we expected, price and wage inflation is cooling and officials should feel comfortable with cuts even in a still strong economy,” they wrote.
Goldman Sachs economists, led by Jan Hatzius, predict rate cuts in June and December, and in June 2026. Their previous forecast was for movements in March, June and September, so they still predict a terminal rate of 3.5%-3.75%.
Traders reduced their bets on interest rate cuts immediately after the jobs data was released at 8:30 a.m. in Washington, discounting only about 30 basis points of reductions through the end of 2025 and fully discounting a move around September versus mid-year previously.
