What if the Fed doesn't cut rates at all in 2025?

Good morning, investors! In our Monday newsletter, I made the case that the Fed is late on rate cuts. For today’s edition, we’re unpacking why the central bank may skip rate cuts entirely until next year.

Let’s dive in.

Today's letter is brought to you by Bitcoin IRA!

Why smart investors use BitcoinIRA:

• Tax Savings: When you trade in an IRA, you don't have to pay capital gains taxes that can be as high as 37% 
• Top-Level Security: Assets are custodied with a US based custodian and insured up to $250M²
• World Class Customer Service: BitcoinIRA has a team of IRA specialists that will help guide you through every step of the process

Take 3 minutes to open your account & get access to over 75 cryptocurrencies in your IRA.

P.S. As an Opening Bell Daily reader, you can earn up to $500 in rewards* when you add funds to your account.

No rate cuts until 2026?

Bond traders, prediction markets, and traditional data all point to rate cuts starting as soon as September, yet two of Wall Street’s biggest banks aren’t buying it. 

Strategists at Bank of America and Morgan Stanley told clients they do not expect a single rate cut until at least 2026, even after Friday’s dismal jobs data, which showed the US added just 73,000 jobs in July, far weaker than expected. 

While Opening Bell Daily remains in the camp that the central bank should have started lowering interest rates months ago, the no-cut argument should still be taken seriously. 

Bank of America’s view hinges on a key distinction — markets are mistaking stagflation for a recession. 

“Labor supply has cratered due to immigration restrictions,” BofA economists wrote. “So while demand has also weakened, labor slack hasn’t increased.”

They point to stable unemployment and steady wage growth as evidence that the slowdown stems more from constrained supply than collapsing demand. 

“The downward revisions to job growth in May and June were undeniably concerning,” BofA economists added. “But the silver lining is that more than half of the revisions were due to seasonal factors and public payrolls.”

Morgan Stanley agrees that the labor market has softened, though its team argues that inflation remains too sticky to justify rate cuts. 

“Tariff-related inflation could limit the Fed’s dovish reaction function,” according to Morgan Stanley strategists. Fed Chair Powell has similarly pointed out that inflationary pressures from President Trump’s trade policy still haven’t fully filtered through to consumer prices. 

“Our house view continues to be that the Fed won’t cut this year, but will end up cutting more than expected next year,” Morgan Stanley strategists said.

Incidentally, both banks are now at odds with futures markets, which assign a roughly 90% probability for a 25-basis-point rate cut in September.

They also contrast with Goldman Sachs, which reiterated its view Monday that the US economy is near “stall speed” and so the Fed will deliver three rate cuts in a row starting next month.

Goldman’s economists estimate that underlying job growth has cratered to less than 50,000 payrolls a month — a level that has historically triggered rate cuts.

Ultimately, the debate comes back to Powell’s own words: “It’s the unemployment rate.” 

To policymakers, that figure takes precedent over payroll growth or economic activity. And while hiring and job growth have lost momentum, the jobless rate remains historically low at 4.2%.

For Bank of America and Morgan Stanley, that’s not enough to justify rate cuts, regardless of markets betting on looser monetary policy. 

From the banks’ perspective — though Opening Bell Daily disagrees — the Fed still risks moving too early rather than too late. 

Like this shortened edition? Sign up free to get the full version of Opening Bell Daily in your inbox each morning.