BofA: Fed May Consider Pausing Rate Cuts if U.S. Interest Rates Approach 4% in Q1 2025

Bank of America, analyzing the third-quarter GDP data released yesterday in the U.S., stated that if growth continues to remain strong, the Fed may consider pausing interest rate cuts after the first quarter of 2025.

In a note to investors, BofA mentioned, "The U.S. third-quarter GDP growth was slightly below the consensus of 2.9% at 2.8%, but above BofA’s tracking estimate of 2.7%. The growth is driven by robust consumer spending, and while investments are slowing somewhat, they are maintaining stability.

GDP growth has been nearly at 3% since the end of 2022. The fact that growth exceeds the Fed's trend growth estimate of 2% justifies a higher interest rate. Although current data supports interest rate cuts, if interest rates approach 4% in the first quarter of 2025 and growth remains strong, the Fed may consider pausing rate cuts."