Recent data flow increases risk of Fed cutting rates before December: BofA

Bank of America (NYSE:BAC) analysts warn that recent economic data "increases the risk of an earlier" interest rate cut by the Federal Reserve than their December forecast. While acknowledging a moderating labor market, BofA emphasizes it's not collapsing.

"The labor market is showing signs of cooling with job growth slowing, but it is not rolling over," states the BofA note, citing June's employment data. They anticipate June's Consumer Price Index (CPI) to be another positive sign for disinflation, potentially prompting an earlier Fed action.

"We expect June CPI to be a soft-report, increasing the Fed's confidence on disinflation," BofA adds. Their forecast predicts a modest 0.1% monthly increase in headline CPI due to a continued decline in energy prices.

While BofA analysts maintain their December cut projection based on inflation trends, they acknowledge the recent data's impact.

"The net softness in the report should keep expectations of a cut this year in market pricing and should keep September live at this point," they conclude.

The report highlights a cooling economy confirmed by activity and employment data, potentially leading to an earlier rate cut cycle by the Fed.