Bank of America Research economists predict no interest rate cuts by the Federal Reserve in 2025, attributing this to stagflation concerns rather than recession risks. Recent jobs data show a significant downward revision in payroll figures, but BofA distinguishes stagflation's dynamics, emphasizing labor supply constraints. Notably, the foreign-born labor force has shrunk by 802,000 since April due to stricter immigration policies, affecting labor supply amid diminishing demand. With break-even job growth estimated at 70,000 jobs per month, BofA highlights steady labor market indicators and Jerome Powell's comments supporting their views on full employment.
BofA economists argue the U.S. economy faces stagflation, not recession, as interest rates are unlikely to be cut despite disappointing jobs data. Key policies are tough immigration restrictions and import tariffs.
A significant decline in the foreign-born labor force has occurred, impacting labor supply. Since April, this workforce has contracted by 802,000, demonstrating the effect of tightened immigration policies.
Bank of America maintains that the key distinction between recession and stagflation hinges on labor supply dynamics rather than merely demand metrics, asserting that unemployment rates remain steady.
Chair Jerome Powell's comments indicate that the Fed defines 'full employment' in light of labor market metrics, signifying they may maintain interest rates despite potential payroll growth stagnation.
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