Fiscal Policy Market News Archives

BofA now predicts a fed rate cut of 125 BPS for 2025 and another 75 BPS during the fourth quarter of this year.

In a recent analysis, Bank of America (BofA) examined the Federal Reserve’s 50 basis points (bps) rate cut, characterizing it as a “recalibration” of monetary policy rather than the beginning of a more aggressive rate-cutting cycle.

Despite the Fed’s optimistic outlook, BofA expressed doubts about the effectiveness of these measures, predicting deeper cuts ahead.

The bank forecasts an additional 75 bps reduction in the fourth quarter of this year and 125 bps in 2025.

BofA noted that the Fed’s messaging, particularly in Chair Jerome Powell’s comments and the dot plot, was unexpectedly hawkish despite the recent rate cut.

Powell clarified that the cut was not prompted by labor market concerns but was intended to adjust rates closer to neutral.

The Fed’s Summary of Economic Projections (SEP) maintained a positive outlook, projecting stable growth and a quicker decline in inflation.

The Federal Open Market Committee (FOMC) statement contained significant updates, but they did not align with a dovish interpretation of the rate cut.

BofA highlighted the Fed’s confidence in meeting its inflation targets and remarked that the risks related to inflation and employment were deemed “roughly in balance.”

Notably, the statement included a commitment to “maximum employment,” marking a shift in communication.

Governor Michelle Bowman dissented from the decision, the first such dissent since 2005, indicating some internal disagreement within the Fed.

The SEP released alongside the rate decision was notably optimistic, predicting above-trend growth and a faster path to lower inflation.

While the Fed raised its unemployment forecast to 4.4%, this was viewed as a reflection of current conditions rather than a significant change in outlook.

However, the Fed’s dot plot raised concerns, showing a median forecast of just 100 bps of cuts in 2024, with nearly half the committee anticipating only a 25 bps cut later this year.

BofA suggested this hawkish view could undermine the Fed’s credibility, especially since pre-meeting communications had hinted at a smaller cut.

This divergence may leave the Fed susceptible to market pressures for further reductions.

BofA believes the labor market is likely to remain weak, compelling the Fed to implement a substantial cut in the fourth quarter.

The bank predicts an additional 75 bps cut in 2024 and 125 bps in 2025, leading to a terminal rate of 2.75-3%.

Following the Fed meeting, long-term yields rose slightly, indicating that the central bank’s “recalibration” may not have achieved its intended impact.

BofA concluded that unless economic data consistently shows strength, the Fed may need to abandon its hawkish stance and consider further cuts.

Also Read: The US Treasury Direct is Now Freezing Customer Accounts

Other US Bank News Today

Market News Today - BofA Now Predicts A Fed Rate Cut of 125 BPS For 2025. — Market News Today – BofA Now Predicts A Fed Rate Cut of 125 BPS For 2025.

A massive US bank now gets hit with an AML investigation over flaws related to its internal controls and crimes risk management.

The Office of the Comptroller of the Currency (OCC) has taken enforcement action against Wells Fargo, raising concerns about the bank’s anti-money laundering (AML) controls and financial crimes risk management.

This development could impact the potential lifting of Wells Fargo’s asset cap and might signal increased scrutiny for other major banks.

On Thursday, the OCC announced it found several deficiencies in Wells Fargo’s AML practices, including issues with suspicious activity reporting, customer due diligence, and customer identification protocols.

The regulatory agreement mandates that Wells enhance its AML and sanctions risk management, secure OCC approval for new offerings, and notify the agency before expanding certain services.

Wells Fargo stated it is already addressing many of the requirements outlined in the agreement and is committed to resolving them with urgency.

Analyst Scott Siefers from Piper Sandler noted that while the formal action was anticipated, it still represents a setback in the bank’s progress to resolve regulatory issues.

Wells Fargo has been under the regulatory microscope since the fallout from its 2016 fake accounts scandal.

Currently, the bank operates under a $1.95 trillion asset cap imposed by the Federal Reserve, one of nine consent orders against it, though six have been lifted since Charlie Scharf became CEO.

The OCC’s 26-page agreement, which did not impose any fines, requires Wells to improve its internal controls and reporting mechanisms related to AML and sanctions practices.

The bank must also enhance its audit program and ensure data integrity for compliance systems.

Jefferies analyst Ken Usdin noted that the broad requirements could impact Wells Fargo’s future growth strategy, but the practical implications remain unclear.

Despite the seriousness of AML issues, Royal Bank of Canada analyst Gerard Cassidy believes this enforcement action will not hinder efforts to lift the asset cap, as it primarily addresses past consumer banking problems.

Wells Fargo has invested significantly in its risk and control operations, hiring around 10,000 employees and increasing spending by $2.5 billion annually since 2018.

This suggests the new regulatory action may not drastically alter overall costs.

Other major banks have also faced scrutiny regarding their AML and sanctions programs.

Bank of America and Citi have highlighted related risks in their recent filings, while JPMorgan Chase continues to disclose ongoing investigations from a 2019 money-laundering incident in India.

Additionally, Canadian lender TD is under investigation for its U.S. AML program related to drug trafficking allegations.

As the financial landscape evolves, the potential for similar enforcement actions against other banks remains uncertain, leaving the industry on alert.

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The US National Debt now surges by a whopping $684bn with Fitch warning that America has failed to fix the growing debt burden.

The U.S. national debt has surged dramatically, increasing by more than half a trillion dollars in just three months.

According to the U.S. Treasury, the national debt rose from approximately $34.64 trillion on June 3 to nearly $35.32 trillion by September 3—a staggering increase of $684 billion.

This spike follows shortly after the national debt crossed the $35 trillion threshold.

Fitch Ratings has issued a warning regarding the escalating debt and persistent deficits.

In a recent commentary, Fitch affirmed its long-term “AA+” rating for the U.S. with a stable outlook, citing the nation’s high per capita income, its status as the largest economy globally, and a robust business environment.

However, the agency has withheld an upgrade to a “AAA” rating due to concerning fiscal conditions.

Fitch notes that the U.S. faces significant constraints, including high fiscal deficits, a substantial interest burden, and government debt exceeding twice the median for “AA” rated countries.

The report highlights that the government has not adequately addressed the growing fiscal deficits or the increasing debt burden, particularly in light of anticipated spending increases associated with an aging population.

While the U.S. benefits from the dollar’s position as the world’s reserve currency, Fitch warns that continued reliance on debt to finance expenditures could undermine trust in both the U.S. and the dollar.

“Persistent increases in the public debt burden would heighten vulnerability to economic and confidence shocks,” the report states.

Last year, Fitch downgraded the U.S. long-term rating from the “AAA” standard to “AA+,” citing expected fiscal deterioration in the coming years.

As the national debt continues to rise, concerns about the country’s fiscal health remain at the forefront of economic discussions.

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Also Read: The US Treasury Direct is Now Freezing Customer Accounts

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Market News Today - The US National Debt Now Surges By Whopping $684bn. — Market News Today – The US National Debt Now Surges By Whopping $684bn.

The Treasury now recovers a whopping $1.3bn in unpaid taxes from high net worth individuals who sought to dodge paying.

The IRS announced on Friday that it has collected $1.3 billion from wealthy tax evaders since last fall, attributing this success to increased enforcement efforts funded by President Joe Biden’s climate, health care, and tax legislation enacted in 2022.

Treasury Secretary Janet Yellen and IRS Commissioner Danny Werfel visited an IRS campus in Austin, Texas, to highlight this achievement amid warnings from Republicans about potential budget cuts for the agency if they regain control of the White House and Congress.

In her speech, Yellen pointed out that in 2019, the wealthiest 1% of Americans were responsible for over 20% of unpaid taxes, leaving a heavier burden on average taxpayers.

“To address this, we’ve directed IRS funding toward substantial investments to tackle tax evasion,” she stated.

In 2023 and 2024, the IRS initiated several programs targeting high-income individuals who have not paid their tax obligations.

The focus is on taxpayers with incomes exceeding $1 million and tax debts over $250,000.

According to IRS officials, nearly 80% of the 1,600 millionaires identified for delinquent taxes have since made payments, resulting in over $1.1 billion recovered.

Additionally, in the first six months of a new initiative launched in February 2024, the IRS collected $172 million from 21,000 wealthy individuals who had not filed tax returns since 2017.

Republicans have advocated for cuts to IRS funding, with Donald Trump’s presidential campaign promising to significantly reduce federal agency spending.

Trump’s campaign also criticized Democratic nominee Kamala Harris for her role in hiring 87,000 new IRS agents, a claim that stems from a Treasury proposal to expand the IRS workforce over the next decade if additional funding is secured.

With around 50,000 IRS employees expected to retire in the next five years, the agency is seeking to bolster its staff, reports ABC News.

The National Taxpayer Advocate, an independent IRS oversight body, reported that the IRS currently employs about 681 armed agents.

This year, the IRS also launched a program called Direct File, allowing individuals with simple W-2 forms to directly calculate and submit their tax returns to the agency.

In April, the IRS noted that participants in this program claimed over $90 million in refunds.

While 12 states participated in the Direct File program for the 2024 tax season, more states, including Maryland, Oregon, New Jersey, Pennsylvania, New Mexico, Connecticut, North Carolina, Wisconsin, and Maine, are set to join for the 2025 tax season.

Also Read: A Massive US Bank is Now Closing Credit Cards