{"id":130625,"date":"2025-08-09T02:37:10","date_gmt":"2025-08-09T02:37:10","guid":{"rendered":"https:\/\/www.europesays.com\/us\/130625\/"},"modified":"2025-08-09T02:37:10","modified_gmt":"2025-08-09T02:37:10","slug":"bank-of-america-sees-stagflation-not-recession-and-no-rate-cut-this-year-its-because-of-2-specific-trump-policies","status":"publish","type":"post","link":"https:\/\/www.europesays.com\/us\/130625\/","title":{"rendered":"Bank of America sees stagflation, not recession\u2014and no rate cut this year. It\u2019s because of 2 specific Trump policies"},"content":{"rendered":"\n

Bank of America<\/a> Research economists remain convinced that the Federal Reserve will not cut interest rates in 2025,\u00a0despite 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\u2014not recession\u2014and cutting rates could worsen that toxic mix of stagnation and inflation.<\/p>\n

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.<\/p>\n

First things first, Bhave\u2019s team turned to the July jobs report that stunned Wall Street<\/a> with\u00a0a net downward revision of 258,000 jobs for May and June. That\u2019s 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<\/a>. But BofA\u2019s strategists argue this doesn\u2019t spell recession. In fact, the crux of their argument, they say, is that \u201cmarkets are conflating recession with stagflation.\u201d<\/p>\n

The key distinction comes down to\u00a0labor supply,\u00a0not just demand. The research points to a sharp contraction in the foreign-born labor force\u2014down by 802,000 since April\u2014as immigration policy has tightened dramatically. This supply-side squeeze is pushing against weaker labor demand, keeping metrics that should indicate labor slack\u2014such as the unemployment rate and the ratio of job vacancies to unemployed workers\u2014basically flat for the past year. Bank of America estimates that\u00a0break-even job growth, meaning the rate of hiring needed to keep joblessness steady, will hit just 70,000 per month this year.<\/strong><\/p>\n

Chair Jerome Powell\u2019s recent comments support this interpretation, BofA said. Even if payroll growth slows to zero, the Fed now considers the labor market at \u201cfull employment\u201d as long as the unemployment rate doesn\u2019t spike. In July, unemployment inched up to 4.25% from 4.12%, but remains within range-bound levels.<\/p>\n

Other economists disagree with this assessment. A team at UBS said the labor market is showing signs of \u201cstall speed<\/a>,\u201d with a subdued average workweek of 34.25 hours in July\u2014below 2019 levels and far from the \u201cstretching\u201d that\u2019s typical when labor markets are tight owing to worker shortages. Industry-specific data also show that job losses are not concentrated in sectors with large immigrant workforces, further supporting the view that slack comes from weakened demand, not a supply constraint.<\/p>\n

Story Continues <\/p>\n

By contrast, BofA still sees labor demand holding up, and pointed to average hourly earnings growth of 3.9% year on year in July, and aggregate weekly payrolls increasing by 5.3%.<\/p>\n

The debate over demand versus supply is critical as the answer will determine how the Fed responds to stagflationary signals.<\/p>\n

BofA explained how two Trump policies are fueling the brewing mix of stagnant growth and inflation that could be taking America back to the 1970s.<\/p>\n

Trump\u2019s changes to immigration have quietly but dramatically choked off labor supply. BofA analysts said this is happening earlier than they expected, and they remarked that the collapse in the foreign-born labor force has more than offset gains among native-born workers\u2014even though the latter make up more than three-quarters of the total workforce.<\/p>\n

Sectors that rely heavily on immigrant labor, like construction, manufacturing, and hospitality, have seen disproportionate job losses. Those three accounted for 46,000 of the downward revisions to the May and June data.<\/p>\n

\u201cConstruction payrolls have stalled out this year, manufacturing has declined for three consecutive months, and leisure and hospitality added just 9K jobs in total in May and June,\u201d BofA said.<\/p>\n

That\u2019s notable because leisure and hospitality was a strong spot in the labor market in 2023\u201324.<\/p>\n

The second pillar of stagflation comes from a new round of\u00a0import tariffs, particularly on Chinese goods.\u00a0Since July 4, the overall effective U.S. tariff rate has jumped to about 15%.<\/p>\n

Bank of America\u2019s economists warn that tariffs are starting to show up in the inflation data:\u00a0Core goods prices excluding autos\u00a0rose 0.53% in June, the fastest in 18 months.<\/p>\n

Crucially,\u00a0underlying core PCE (personal consumption expenditures) inflation remains stuck above 2.5%\u2014well above the Fed\u2019s target.\u00a0With long-term expectations anchored for now, policymakers are wary of cutting rates before there\u2019s clear evidence that inflation has peaked. Some regional Fed presidents have warned the tariff effect could last deep into 2026.<\/p>\n

Markets are currently pricing in a quarter-point cut by September. But Bank of America says cuts next month would be risky\u2014especially if the labor market is tight owing to\u00a0supply, not\u00a0demand. Cutting rates too soon could undermine the Fed\u2019s credibility if inflation simply accelerates in response, forcing a swift reversal.<\/p>\n

The research note concludes that unless the August jobs report brings a sharp rise in unemployment\u2014specifically above 4.4%\u2014or inflation softens unexpectedly, the Fed is likely to hold steady through the end of the year. Any move to cut rates now would require \u201cputting more faith in a forecast of labor market deterioration and transitory tariff effects than in the data in hand,\u201d the strategists write.<\/p>\n

For this story,\u00a0Fortune\u00a0used generative AI to help with an initial draft. An editor verified the accuracy of the information before publishing.\u00a0<\/p>\n

This story was originally featured on Fortune.com<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"Bank of America Research economists remain convinced that the Federal Reserve will not cut interest rates in 2025,\u00a0despite…\n","protected":false},"author":3,"featured_media":130626,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[12],"tags":[21866,64,79,19877,79489,2180,4506,79488,79490,6233,2179,67,132,68],"class_list":{"0":"post-130625","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-economy","8":"tag-bank-of-america","9":"tag-business","10":"tag-economy","11":"tag-import-tariffs","12":"tag-labor-demand","13":"tag-labor-force","14":"tag-labor-market","15":"tag-labor-supply","16":"tag-research-note","17":"tag-stagflation","18":"tag-unemployment-rate","19":"tag-united-states","20":"tag-unitedstates","21":"tag-us"},"share_on_mastodon":{"url":"https:\/\/pubeurope.com\/@us\/114996487353332143","error":""},"_links":{"self":[{"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/posts\/130625","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/comments?post=130625"}],"version-history":[{"count":0,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/posts\/130625\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/media\/130626"}],"wp:attachment":[{"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/media?parent=130625"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/categories?post=130625"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/tags?post=130625"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}