Bank of America economists expect the Fed to maintain its policy rate in July, while indicating that progress has been made in lowering inflation.

The bank's economists said in a statement that the Fed is optimistic about the possibility of a recent rate cut, but it is unlikely to signal that a rate cut in September is a certainty.

They pointed out: "(Rate cuts in September) may happen, but it depends on the data. This is the general tone of most FOMC members who have recently made public speeches. Although inflation data is encouraging, more evidence is needed before normalizing policy rates."

Bank of America also believes that Fed Chairman Powell will indicate that the Fed's focus will shift from simply focusing on inflation to a more balanced approach. Previously, because inflation was far from the target, while employment was closer to the target, the Fed put inflation first.

"Now, because the deviation of inflation and employment from the target is small, the Fed's attention can be more balanced. Interest rate cuts can be due to economic cooling, or due to slowing inflation, or a combination of both."

Although the market expects the Fed to start cutting interest rates in September and cut rates about 2.5 times this year, the Fed may not need to strongly support a rate cut in September. Bank of America economists point out that the more interesting question is whether it will go against market expectations.

"Even if the market rebounds due to rate cut expectations, we think it will be moderate. After all, Powell has indicated that the committee will still rely on data and make decisions based on successive meetings."

Economists noted that at the Jackson Hole Symposium at the end of August, Powell will have another opportunity to confirm or refute market pricing.

Overall, Bank of America still believes that the Fed will cut interest rates once in December this year, and is not too worried about the risk of a sharp economic slowdown. Economists said, "We think the market is beginning to be too optimistic about the upcoming cycle of rate cuts."

However, they also admit that a rate cut in September is now closer to their benchmark expectations. They said: "The Fed's dovish attitude, weak July employment reports, or a recurrence of inflation data similar to June could change our minds. On the other hand, strong July employment reports and uneven inflation data, coupled with second-quarter GDP data higher than consensus, could lead the Fed to postpone a rate cut until after September."

Flowserve, a director and chief investment strategist at Oppenheimer Asset Management, also expects the Fed not to cut rates before September. John Stoltzfus said it was an uncertain period, with many high-leverage investors hoping for a rate cut, but the Fed has not yet decided to cut rates.

Editor/Lambor