Bank of America has eliminated its Federal Reserve rate cut forecast following January jobs data that showed broad-based employment strength across the US economy. The Wall Street bank now expects zero cuts under Fed Chair Jerome Powell, shifting from earlier expectations of gradual easing in 2026.
"The broad-based strength in the Jan jobs report vindicates our view that the Fed won't cut under Powell," Bank of America analysts wrote. The firm warned that potential Fed successor Kevin Warsh would face limited room for significant cuts unless unemployment rises substantially.
The revised outlook puts Bank of America at odds with Deutsche Bank, which maintains its S&P 500 target of 8,000 by December 2026. The German institution anticipates dollar weakness as rate cuts eventually materialize despite current labor market strength—a divergence that reflects broader uncertainty among global financial institutions about central bank policy paths.
Bank of America analysts questioned whether rising productivity data reflects genuine efficiency gains, noting that corporate profits continue climbing while labor income falls. "This split between profits and income is consistent and being reinforced by the rally in financial as well as real assets, which are more concentrated among higher- and middle-income households," the team wrote.
The productivity debate carries implications for global banking institutions navigating capital allocation across jurisdictions. If productivity gains prove temporary, the profit-wage divergence could pressure consumer credit quality and deposit growth in major markets.
International banks face competing strategic pressures as they balance preparations for extended higher US rates against positioning for eventual easing cycles. Treasury management, duration risk, and loan portfolio composition must account for divergent scenarios across Atlantic and Pacific markets.
The January employment report has pushed US rate cut expectations further out, forcing global banks to recalibrate funding costs and asset-liability management assumptions. Unemployment trends will determine whether the Fed's hawkish stance holds or gives way to the easing some European and Asian forecasters still anticipate.