Wall Street Economists Lose Faith in Fed Rate Cuts on Jobs Data

(Bloomberg) — Economists at Bank of America Corp., Citigroup Inc. and Goldman Sachs Group Inc. pared back their forecasts for additional Federal Reserve interest-rate cuts in response to stronger-than-expected December US employment data released Friday.

Most Read from Bloomberg

Bank of America, which previously expected two quarter-point reductions this year, no longer expects any, and said there’s a risk the next move is a hike. Citigroup — whose rate-cut outlook is among Wall Street’s most hopeful — still looks for five quarter-point cuts, but says they’ll start in May, vs January previously. Goldman Sachs sees two cuts this year versus three.

“After a very strong December jobs report, we think the cutting cycle is over,” Bank of America economists led by Aditya Bhave wrote. “The conversation should move to hikes” in the event that inflation as measured by the annual growth rate of the price index for core personal consumer expenditures exceeds 3% and inflation expectations drift higher, they wrote.

Since September, the Fed has lowered its target range for the US overnight lending rate 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 they “are not particularly concerned about scenarios in which the Fed does not cut this year or considers hikes.”

While employment “is holding up better than we had expected, price and wage inflation are both cooling and should have officials comfortable cutting 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 call was for moves in March, June and September, so they still forecast a terminal rate of 3.5%-3.75%.

Traders pared their bets on interest-rate cuts immediately after the jobs data was released at 8:30 a.m. in Washington, pricing in only about 30 basis points of reductions through the end of 2025, and fully pricing in a move around September vs around mid-year previously.

(Adds Goldman Sachs forecast change.)