All right, today's jobs data is raising more uncertainty about the path for interest rates this year. In fact, Bank of America

does not see the Fed cutting rates at all in 2025. For more, let's welcome in

Lauren Sen Filipo, Bank of America senior investment strategist. Lauren, it is great to see you. So let's get right to it.

Lauren, I'm interested to get your take, uh, your response to that jobs report, Lauren, and and what you make of this

market reaction. Do you think it's an overreaction?

Lauren, I think that the market is squarely looking at what the Fed's going

to do next, right? And the jobs report, which actually was a good one, basically priced out cuts for the year, and that's sort of

how we've pivoted, too, in terms of our outlook. We're now not really looking for additional rate cuts this year, um, and in

fact, we think the risk is actually skewed to perhaps a hike if we see that PCE data that's coming in a bit stronger

than expected—hotter than expected. So I guess the question is, do you think it's going to continue? In other words, we've

seen little signs of inflation per up. You know, we saw the ISM Prices Paid report earlier this week, um, wage growth

didn't look that hot in today's jobs report, but the University of Michigan inflation expectations, longer term, is

ticking up. So do you think that that reacceleration is what we're looking at here?

Well, we saw that in Q4, too, so it's not shouldn't be that big of a surprise. Like, I don't want to make too much of this one report or even next week when

we get those inflation prints, right? Let's not overreact to one month's data. Also considering there were some

oddities and some one-offs even in the jobs market data today—the jobs report. So, um, I'll say we could be in for a

a little bit stickier than expected. Inflation that's hanging out in that 2 to 3% range right, that's not out of the

question. And by the way, markets kind of knew that last year. But if inflation's sticky here, Lauren, was the Fed wrong to

cut at all? I don't think the Fed was totally wrong. I think the first 50 basis

point cut was kind of like an insurance cut, right? You heard that a lot. Um, but 100 basis points in what was kind of

like a shorter time frame is definitely significant. Um, and we'll see how that plays out down the line with that lag in

monetary policy in terms of how the corporates are sort of responding to that. I think what we're sort of trying

to grapple with here is, as you said, the re-acceleration was already being seen; the narrative was already pushing away

from, at least pulling away from, as many cuts this year, if not to none. So why is what's happening now such a problem for

stocks? I guess is what I could say. I mean, we're still looking at a job market that is good; inflation is still not

super hot. So what, what is the problem here, right? A, the fact that people are employed should actually be a good thing,

right? Stocks should feel good about that. Um, I think at some point, though, you have to think about yields and how stocks are

thinking about yields, right? And when we're bumping up or heading towards 5% on that 10-year, right, stocks have been

tolerant of higher yields, um, and we saw that certainly in the fall and everything went okay, right? It was like

still smooth sailing in terms of what we saw in the fall with, uh, stocks and bonds. But here, I think, you know, 5%

might be the psychological level, Julie, but I actually think that it's more about why bond yields are rising, right?

in terms of their yield, so and in this case it's more about Fed expectations where before it was stronger than

anticipated growth. Right. In the fall, the glass-half-full argument is that, Lauren, that you'll hear, which is that it was a

good report and it's a good labor market and it's a good economy, and that's good for stocks. But the bottom

line is we have sticky inflation. I mean, inflation is not where JP wanted it, and he decided to cut anyway. And now I think

a lot of investors look at a report like this and think, when are we getting back to 2%, or maybe the feeling is, get

comfortable with not getting back, and maybe above trend is what you should get comfortable with. I think the higher-for-

longer narrative that's seeping in here is true, right? I think we're going to see that play out this year, um, and I think

that the Fed is coming around to that. Maybe, maybe they too will be tolerant of sort of this 2 to 3%, right? More of a

flexible target than a hard stop at 2%. The other thing that's coming that could be affecting inflation is fiscal

policy, and this is something, um, that you and one of your colleagues wrote about recently, sort of the positioning of the

U.S. as we go into a potential tariff regime and other measures that are going to be put in place by the Trump

administration. What does that do to inflation, and how does that position the U.S.? Yeah, it's a good question. Um, we do

have to think about that return differential and what it could mean for inflation here versus, um, sort of the rest

of the world, right? Uh, but generally, I'll say we're not too sure yet on how this shakes out in terms of what's

anti-growth, what's pro-growth, right? And and a lot of times I think there's a lot

of analysis that sort of looks at those policies in isolation; we have to look at the whole kitten kaboodle, right?

I think that's an important part, and we just don't know yet. So I would say, from a portfolio perspective, the best thing

to do now is really get ahead of maybe some rebalancing—what you can do before January 20th. I think that could make

sense. Um, and we do think that the greater drivers—right, fundamentally what we're seeing for equities—is this

broadening trade when it comes to a lot of the earnings that we're expecting. I mean, even for Q4 now, we're having

financials report next week, and uh, the financials in terms of their earnings growth—right—it's set for like close to

40% for Q4. So I do think we can have this widening opportunity set, um, and that looks compelling to us.

Why this BofA strategist sees no rate cuts in 2025

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Why this BofA strategist sees no rate cuts in 2025

Why this BofA strategist sees no rate cuts in 2025

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