Bank of America expects Fed to deliver two cuts this year after soft jobs report

Federal Reserve Chairman Jerome Powell, speaks during a news conference following a Federal Open Market Committee meeting in Washington. (AP Photo/Manuel Balce Ceneta)

BofA Global Research on Friday forecast the U.S. Federal Reserve to deliver two 25 basis point (bp) cuts, in September and December, after a soft jobs report.

BofA, was the only Wall Street brokerage , which had previously expected no cuts this year. For 2026, BofA projects an additional 75 basis points of easing.

Data on Friday showed U.S. job growth weakened sharply in August and the unemployment rate rose to a near four-year high of 4.3 per cent, confirming a softening labor market and strengthening the case for a rate cut this month.

“The August jobs report should cement a shift in the Fed’s thinking from worrying about inflation to focusing on labor weakness,” BofA economists said in a note.

However, BofA warned that if the labor market weakens significantly further, the Fed could cut rates at its October meeting and “possibly more” next year.

Morgan Stanley, which currently forecasts 50 basis points of cuts by year-end, echoed a similar view: “For the Fed, this probably aligns with a 25 bp cut, but it tilts risks in the direction of 75 bp in cuts by year-end.”

Last month, Fed Chair Jerome Powell signaled a rate cut was possible at the Sept. 16 to 17 policy meeting, acknowledging rising labor market risks, while cautioning that inflation remained a threat.

“The shift in our view is motivated by both the softer labor data and Powell’s reaction function, as stated at Jackson Hole,” BofA added.

Several global brokerages, including Citigroup, expect the Fed to cut rates in its September meeting.

(Reporting by Siddarth S in Bengaluru; Editing by Tasim Zahid)