Bank of America sees stagflation, not recession--and no rate cut this year. It's because of 2 specific Trump policies [View all]

[In It to Win It]

Bank of America Research economists remain convinced that the Federal Reserve will not cut interest rates in 2025, despite a recent wave of disappointing jobs data fueling market speculation of an imminent policy shift. The reason, according to a new research note: The U.S. economy is headed toward a battle with stagflation—not recession—and cutting rates could worsen that toxic mix of stagnation and inflation.

The BofA team, led by senior U.S. economist Aditya Bhave, cited two major Trump administration policies as the key factors in their call: tough new immigration restrictions and a fresh series of import tariffs.

Why it’s not a recession, according to BofA

First things first, Bhave’s team turned to the July jobs report that stunned Wall Street with a net downward revision of 258,000 jobs for May and June. That’s the second largest in modern history outside of the initial pandemic shock and the largest ever in a non-recession year, according to Goldman Sachs calculations. But BofA’s strategists argue this doesn’t spell recession. In fact, the crux of their argument, they say, is that “markets are conflating recession with stagflation.”

The key distinction comes down to labor supply, not just demand. The research points to a sharp contraction in the foreign-born labor force—down by 802,000 since April—as immigration policy has tightened dramatically. This supply-side squeeze is pushing against weaker labor demand, keeping metrics that should indicate labor slack—such as the unemployment rate and the ratio of job vacancies to unemployed workers—basically flat for the past year. Bank of America estimates that break-even job growth, meaning the rate of hiring needed to keep joblessness steady, will hit just 70,000 per month this year.

https://www.yahoo.com/finance/news/bank-america-sees-stagflation-not-183756049.html