BofA sees deep FOMC divisions ahead of September meeting

Investing.com -- Bank of America analysts warned in a note on Thursday that the Federal Reserve could face sharp internal divisions at its September policy meeting following fresh signs of labour market weakness.

The July Job Openings and Labor Turnover Survey (JOLTS) showed a decline of more than 170,000 job openings, alongside downward revisions to June’s figures.

For the first time since April 2021, the number of unemployed workers exceeded available positions.

According to BofA, this “challenges the narrative” that labour slack has not been meaningfully increasing.

The softer data may strengthen the case for near-term easing. BofA said, “Signs of increasing labor slack lower the bar for a September cut.”

The bank noted that JOLTS data is “lagged by a month” and response rates are low, but emphasised that Chair Jerome Powell’s recent remarks at Jackson Hole left “the onus on the data to prevent a September cut.”

Still, BofA expects the Federal Open Market Committee to be split. “Barring a disastrous jobs report, we expect significant divisions within the FOMC at the Sep meeting,” analysts wrote.

They anticipate that governors Christopher Waller, Michelle Bowman, Mary Daly, and expected new member Adriana Kugler Miran will lean dovish, with Miran and Bowman potentially dissenting in favour of a larger 50 basis-point reduction.

On the other hand, BofA highlighted that “Hammack, Bostic, Musalem and Schmid remain hawkish, emphasizing price stability concerns.” With both Musalem and Schmid holding votes, the analysts cautioned that “we wouldn’t rule out dissents in both directions if the Fed cuts this month.”

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