Jobs Data Sparks Fresh Uncertainty About Interest Rate Path in 2025

Today’s jobs data has introduced new uncertainties about the Federal Reserve’s policy direction in 2025. Bank of America now predicts that the Fed may hold off on cutting rates entirely this year. To explore the implications of this development, we spoke with Lauren Sanfilippo, Senior Investment Strategist at Bank of America.

The recent jobs report painted a picture of a resilient labor market but priced out rate cuts for the year, as the market pivots toward a “higher for longer” rate scenario. “The market is laser-focused on what the Fed is going to do next. Today’s jobs report, which was a strong one, has essentially ruled out rate cuts for this year. In fact, we believe there’s a risk the Fed might even consider hiking rates again if PCE data comes in stronger than expected.”Wage growth was moderate, but other indicators, suggest inflation may remain stickier than expected, hovering in the 2–3% range.

The inflation narrative continues to evolve, with concerns about a potential reacceleration of price pressures. “We’ve already seen signs of reacceleration in Q4, so this shouldn’t come as a surprise. However, I caution against overreacting to one data point or even the upcoming inflation prints. That said, inflation hanging out in the 2–3% range is not out of the question, and markets had already priced in some of that expectation last year.”

Was the Fed Wrong to Cut Rates?

Reflecting on the Fed’s decisions, Lauren explains, “The first 50-basis-point cut felt like an insurance move. But 100 basis points in a short time frame is significant, and its effects will take time to show through, given the lag in monetary policy.” The strong jobs data and sticky inflation narrative might seem positive on the surface, but they’ve created headwinds for equities.

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