BCA Research anticipates that the Federal Reserve will implement rate cuts exceeding 50 basis points in 2025, diverging from the Federal Open Market Committee's (FOMC) median forecast. This expectation is driven by BCA's lower inflation and higher unemployment rate predictions compared to the Fed's.
The FOMC projects a 50 basis point cut, lowering the federal funds target range from 4.25%-4.50% to 3.75%-4.00%. However, BCA argues that more aggressive easing is necessary due to declining core PCE inflation and a weakening job market.
BCA forecasts core PCE inflation could reach 2.5% by early 2025 if recent trends continue. The unemployment rate has risen to 4.2%, challenging the Fed's year-end prediction of 4.3%. BCA suggests an initial 25 basis point rate cut in March, with potential further reductions by 2025's end.
The report also notes that potential tariffs by the incoming Trump administration could temporarily spike inflation but might prompt faster rate cuts due to manufacturing sector impacts.
