US Economic Weekly

Spotlight on trade policy

Authored By

Analyst Name Aditya Bhave

Analyst Email aditya.bhave@bofa.com

Analyst Designation US Economist

Analyst Region BofAS

Analyst Phone +1 646 855 9929

Analyst Name Stephen Juneau

Analyst Email stephen.juneau@bofa.com

Analyst Designation US Economist

Analyst Region BofAS

Analyst Phone +1 202 442 7429

Analyst Name Shruti Mishra

Analyst Email smishra44@bofa.com

Analyst Designation US Economist

Analyst Region BofAS

Analyst Phone +1 646 855 1040

Analyst Name Jeseo Park

Analyst Email jeseo.park@bofa.com

Analyst Designation US Economist

Analyst Region BofAS

Analyst Phone +1 646 855 8688

Analyst Name US Economics

Analyst Region BofAS

Report Details

25 October 2024 Economics United States

US Economic Weekly

Spotlight on trade policy

Authored By

Analyst Name Aditya Bhave

Analyst Email aditya.bhave@bofa.com

Analyst Designation US Economist

Analyst Region BofAS

Analyst Phone +1 646 855 9929

Analyst Name Stephen Juneau

Analyst Email stephen.juneau@bofa.com

Analyst Designation US Economist

Analyst Region BofAS

Analyst Phone +1 202 442 7429

Analyst Name Shruti Mishra

Analyst Email smishra44@bofa.com

Analyst Designation US Economist

Analyst Region BofAS

Analyst Phone +1 646 855 1040

Analyst Name Jeseo Park

Analyst Email jeseo.park@bofa.com

Analyst Designation US Economist

Analyst Region BofAS

Analyst Phone +1 646 855 8688

Analyst Name US Economics

Analyst Region BofAS

Report Details

25 October 2024 Economics United States

Glossary

BofA Securities does and seeks to do business with issuers covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.

Key takeaways

If Trump is elected, we expect China tariffs to increase. We are skeptical that tariffs can offset the cost of tax cuts.
We forecast 0.27% core PCE inflation in Sep. This isn't ideal for the Fed, but we still expect a 25bp cut in Nov.
The Oct jobs report will be distorted by Hurricane Milton and the Boeing strike. We forecast +100k payrolls & a 4.2% u-rate.

US Economic Weekly

TCJA: Tax Cuts and Jobs Act

PCE: Personal Consumption Expenditures

US Economic Weekly

Weekly viewpoint: Spotlight on trade

In a scenario where Trump is elected President, we think tariffs against China would likely increase. FX should mitigate the inflationary impact. We think Canada and Mexico would avoid tariffs. We are skeptical that tariffs could be used as a fiscal policy tool to offset the cost of extending the TCJA. In a scenario where Harris is elected President, we think the administration would likely be status quo on trade policy, perhaps with some additional targeted measures against China.

Data preview: Strong September retail sales

We estimate that nominal personal income rose by 0.3% in September, with strong job and wage growth getting partially offset by the decline in hours worked. We forecast increases of 0.5% and 0.3% in nominal and real spending, respectively. The saving rate should tick down to 4.7%. Meanwhile, we expect core PCE inflation to come in at 0.27% m/m. Although the y/y rate should fall a tenth to 2.6%, this wouldn't be an ideal print for the Fed and would likely concern the hawks. But we look for softer figures in 4Q.

Data preview: Distorted employment

We forecast nonfarm payrolls rose by 100k in October. Although this is below consensus, we'd still view it as a solid print, since we estimate that Hurricane Milton and the Boeing strike lowered payrolls by about 50k. Note that Governor Waller pointed to a larger drag of ~100k in recent comments. The hurricane also likely lowered hours worked and, as a result, raised average hourly earnings growth. Meanwhile, the unemployment rate should move back up to 4.2%, partly due in part to hurricane distortions.

Exhibit 1: US imports by region, 12-month total
Trade policy vis-à-vis China, Mexico and Canada will have a major impact on the revenue that can be raised from tariffs

Source: Census Bureau BofA GLOBAL RESEARCH

US Economic Weekly

Spotlight on trade policy

In a scenario where Trump is elected President, we think tariffs against China would likely increase. FX should mitigate the inflationary impact. We think Canada and Mexico would avoid tariffs.
We are skeptical that tariffs can be used as a fiscal policy tool to offset the cost of extending the TCJA.
In a scenario where Harris is elected President, we think the administration would likely be status quo on trade policy, perhaps with some additional targeted measures against China.

The calm before the storm

It was an unusually quiet week on the data front. We kept ourselves busy by writing a series of pieces on the post-election trade policy outlook. Here we summarize them.

China tariffs as a foreign policy tool

Candidate Trump has proposed 60% tariffs on all goods imports from China. Currently, the average tariff rate on Chinese goods is 19%. We think tariffs on China would likely increase if Trump were to win the election. For one, Trump has been a consistent advocate of using tariffs as a foreign policy tool, particularly against China. For another, Trump did raise tariffs on China significantly, as promised, when he was President.

The US imports around $430bn of goods from China per year. Therefore, a roughly 40 percentage point increase in tariffs against China would be worth around $170bn, or 0.9% of consumer spending. So the impact of 60% China tariffs on headline inflation would probably be no greater than 0.9pp.

FX, pass-through & substitution mitigate inflation shock

The actual effect should be smaller for five reasons. First, the renminbi is likely to absorb a lot of the tariff shock. During the 2018-19 trade war, USD/CNY appreciated by almost 13% from peak to trough. Second, retailers might absorb some of the tariffs in margins. Third, a lot of US imports from China are intermediate or capital goods, rather than consumer goods. This should further reduce the pass-through to consumers.

Fourth, if retailers try to pass tariffs through to consumers, the impact on prices will be one-for-one only if consumers can't substitute away to a non-Chinese product (i.e., demand is "inelastic"). Last, and related, importers will probably also re-jigger their supply chains to reduce their dependence on China. Bottom line: 60% tariffs against China would likely be inflationary, but not as much as the "simple math" would suggest.

Mexico: the concern is again China

Trump has also proposed 10% tariffs on all other countries, including Mexico and Canada. Based on our conversations with policy experts, the threat to impose tariffs in the USMCA region appears to be related, once more, to China. They seem to be concerned that China is i) manufacturing products in Mexico and then shipping them to the US, tariff-free, and ii) allegedly shipping products that are made in China via Mexico to the US, and labeling them as "Made in Mexico".

The latter would violate the rules of the USMCA, which is up for review in 2026. If Trump is elected, there is a risk that the US might ask for better trade terms or higher domestic content requirements and raise the above China issue. In this scenario, investors should expect volatility in Mexican and Canadian asset markets, including FX, around the negotiations. The US government's relations with the new Mexican government, and potentially a new Canadian government, could be an important factor.

Tariffs within North America appear unlikely

Despite some potential noise, we see three reasons why tariffs are unlikely to be imposed in the USMCA region, First, tariffs would be hard to implement because of the intricacy of North American supply chains. Second, Mexico and Canada's dependency on the US makes them more likely to agree to the US's terms in the USMCA review (Exhibit 2). Third, the USMCA was Trump's deal: in our view, that makes it less likely that he would undermine it by imposing tariffs in the region.

Exhibit 2: Canada and Mexico, exports to the US as a % of GDP (four-quarter average)
Given the deep trade interlinkages in the USMCA region, tariffs would be very disruptive for Canada and Mexico

Source: StatCan, INEGI BofA GLOBAL RESEARCH

Exhibit 3: US imports from China ($bn, 12-month total)
Substantially higher tariffs would probably accelerate the decline in US imports from China

Source: Census Bureau BofA GLOBAL RESEARCH

Tariffs as a fiscal policy tool: does the math work?

Taken at face value, Trump's proposed goods tariffs (60% on China and 10% on all other countries) would increase annual customs revenue by about $450bn, of which more than a third would come from China. Some analysts have argued that this could offset the cost of extending the Tax Cuts and Jobs Act (TCJA). But the issue is that, as discussed above, importers and consumers would likely substitute toward products made in lower-tariff jurisdictions, or in the US. The ongoing decline in imports from China would likely accelerate (Exhibit 3). As a result, tariff revenues should erode over time, even if they start at levels that could offset the cost of TCJA extension.

The tariff revenue base would also shrink substantially if Mexico and Canada avoid tariffs, since they account for 30% of US imports (Exhibit 1). Even if they don't, note that the import figures for Mexico and Canada include multiple counts of goods that go back-and-forth across the border during production. This limits the tariff revenue that can be raised from these countries, assuming that products are only tariffed once.

Inflation up, policy rates up, interest expenses up

Another argument that some analysts have made in favor of a tariffs-and-tax-cuts policy mix is that the stimulus from tax cuts would offset any economic drag from the tariffs. That is potentially true in terms of economic activity. But when it comes to prices, both the demand stimulus from tax cuts and increased tariffs would likely be inflationary, pushing the Fed into a more hawkish stance. In turn, Treasury yields and the Treasury's interest expenses would also rise, adding to the deficit. So in summary, while there might be other reasons to impose tariffs, we don't think they should be viewed as a stable source of revenue for the Federal government, or as an offset for tax cuts.

Harris would be status quo on trade

Meanwhile, if Harris is elected President, we would expect mostly status quo trade policies. There could be more targeted measures against China, but we think there will be little-to-no additional tariffs against the rest of the world. The 2026 USMCA review would also probably be uneventful. However, we wouldn't look for a big reversal in the US's shift towards protectionist trade policies either: specifically, the tariffs that are already in place would likely not be removed, in our view.

US GDP Tracking

Advance 3Q GDP expected to print at 3.0% q/q saar

Our 3Q GDP tracking estimate was unchanged this week. We expect the advance 3Q GDP estimate to print at 3.0% q/q saar, unchanged from 2Q. We incorporated September existing and new home sales in our tracking estimate this week, but they were not enough to shift our expectations for residential investment of GDP overall.

Underlying demand in the US economy continues to impress as we expect final sales to grow by 3.2% q/q saar, up from 2.9% in 2Q. We expect this acceleration in underlying demand to largely be driven by household consumption, which we estimate rose by 3.4%. Healthy job growth, positive real wages and wealth effects continue to contribute to strong consumption despite low sentiment.

The bottom line is that the GDP report will continue to show little slowdown in the US economy.

Exhibit 4: BofA US GDP tracking estimate (% q/q saar)
We expect the advance estimate of 3Q GDP to print at 3.0% q/q saar reflecting strong domestic demand
For an accessible version Merrill clients call 800-637-7455; Merrill Edge Self-Directed clients call 877-653-4732
													Net exports	CIPI
	Date	Data release	GDP	Final Sales	PCE	Res. Inv.	Struct	Equip	IPP	Gov.	Exports	Imports	(level)	(level)
	10/1/24	Construction Spending	2.6	2.9	3.2	4.0	3.0	1.1	4.3	1.5	4.4	4.9	-1051.7	90.3
	10/3/24	Factory Orders, Vehicle Sales	2.6	2.9	3.2	4.0	3.0	0.6	4.3	1.5	4.4	4.9	-1051.7	89.1
	10/4/24	Payrolls	2.7	3.0	3.2	5.4	3.0	0.6	4.3	1.8	4.4	4.9	-1051.7	89.1
	10/8/24	Trade Balance	2.7	3.0	3.2	5.4	3.0	0.6	4.3	1.8	4.9	5.5	-1053.7	89.1
	10/9/24	Wholesale Inventories	2.6	3.0	3.2	5.4	3.0	0.6	4.3	1.8	4.9	5.5	-1053.7	84.5
	10/10/24	CPI	2.6	3.0	3.2	5.4	3.0	0.6	4.3	1.8	4.9	5.5	-1053.7	84.5
	10/11/24	PPI	2.6	3.0	3.2	5.4	3.4	0.6	4.3	1.8	4.9	5.5	-1053.7	87.1
	10/17/24	Retail sales, IP, Business inventories, & import prices	3.0	3.2	3.4	5.4	3.4	0.6	4.3	1.8	5.8	7.7	-1066.3	82.2
	10/23/24	Existing Home Sales	3.0	3.2	3.4	5.4	3.4	0.6	4.3	1.8	5.8	7.7	-1066.3	82.2
	10/24/24	New Home Sales	3.0	3.2	3.4	5.4	3.4	0.6	4.3	1.8	5.8	7.7	-1066.3	82.2
		GDP tracking	3.0	3.2	3.4	5.4	3.4	0.6	4.3	1.8	5.8	7.7	-1066.3	82.2
		Contribution to GDP growth (pp)			2.3	0.2	0.1	0.0	0.2	0.3			-0.4	0.2
		BofA official GDP forecast	2.5	2.5	2.5	1.0	1.5	2.5	4.5	1.5	2.5	3.5	-1049.0	86.0
Source: BofA Global Research. Our GDP tracking estimate reflects the mechanical aggregation of incoming data that directly informs the BEA's GDP calculations. The process is distinct from our official published GDP forecast. Boldface cells indicate where data have implications for tracking estimates. BofA GLOBAL RESEARCH

Exhibit 5: Final sales (%q/q saar)
We expect final sales, a better measure of underlying demand, accelerated in 3Q

Source: BEA, Haver Analytics, BofA Global Research BofA GLOBAL RESEARCH

Exhibit 6: US GDP tracking estimate (% q/q saar)
Ahead of the advance GDP report, we are tracking 3Q GDP at 3.0% q/q saar

Source: BofA Global Research BofA GLOBAL RESEARCH

Data in the past week

Data in the past week
This week the focus was on home sales, durable goods orders, and S&P PMIs
For an accessible version Merrill clients call 800-637-7455; Merrill Edge Self-Directed clients call 877-653-4732
Date	Time	Indicator	Period	Actual	Consensus	Previous
10/21/24	10:00	Leading Indicators	Sep	-0.5%	-0.3%	-0.3%
10/23/24	7:00	MBA Mortgage Applications	Oct 18	-6.7%	-	-17.0%
10/23/24	10:00	Existing Home Sales	Sep	3.84M	3.88M	3.88M
10/24/24	8:30	Initial Jobless Claims	Oct 19	227k	242k	242k
10/24/24	9:45	S&P Global US services PMI	Oct P	55.3	55.0	55.2
10/24/24	9:45	S&P Global US manufacturing PMI	Oct P	47.8	47.5	47.3
10/24/24	10:00	New Home Sales	Sep	738k	720k	716k
10/25/24	8:30	Durable Goods Orders	Sep P	NR	-1.0%	0.0%
10/25/24	8:30	Durables Ex Transportation	Sep P	NR	-0.1%	0.5%
10/25/24	8:30	Core Capital Goods Shipments	Sep P	NR	0.0%	-0.1%
10/25/24	8:30	Core Capital Goods Orders	Sep P	NR	0.1%	0.3%
10/25/24	10:00	U. of Michigan Sentiment	Oct F	NR	69.1	68.9
Source: Bloomberg, BofA Global Research. NR: Not Released BofA GLOBAL RESEARCH

Data in the week ahead

Data in the week ahead
Next week the focus is on personal income & outlays, and employment report
For an accessible version Merrill clients call 800-637-7455; Merrill Edge Self-Directed clients call 877-653-4732
Date	Time	Indicator	Period	BofA Estimate	Consensus	Previous
10/29/24	8:30	Wholesale Inventories	Sep P	-	-	0.1%
10/29/24	8:30	Advance Goods Trade Balance	Sep	-$95.5b	-$96.0b	-$94.3b
10/29/24	9:00	Case-Shiller HPI (yoy)	Aug	4.5%	-	5.0%
10/29/24	10:00	Consumer Confidence	Oct	99.5	98.8	98.7
10/29/24	10:00	JOLTS Job Openings	Sep	-	-	8040k
10/30/24	7:00	MBA Mortgage Applications	Oct 25	-	-	-6.7%
10/30/24	8:15	ADP Employment	Oct	-	108k	143k
10/30/24	8:30	GDP (qoq saar)	3Q A	3.0%	3.0%	3.0%
10/30/24	8:30	Personal consumption (qoq saar)	3Q A	-	-	2.8%
10/30/24	10:00	Pending Home Sales	Sep	-1.0%	-	0.6%
10/31/24	8:30	Initial Jobless Claims	Oct 26	230k	-	227k
10/31/24	8:30	PCE Headline Prices (mom)	Sep	0.2%	0.2%	0.1%
10/31/24	8:30	PCE Headline Prices (yoy)	Sep	2.1%	2.1%	2.2%
10/31/24	8:30	PCE Core Prices (mom)	Sep	0.3%	0.3%	0.1%
10/31/24	8:30	PCE Core Prices (yoy)	Sep	2.6%	2.6%	2.7%
10/31/24	8:30	Personal saving rate	Sep	4.7%	-	4.8%
10/31/24	8:30	Personal Spending	Sep	0.5%	0.4%	0.2%
10/31/24	8:30	Employment Cost Index	3Q	0.9%	0.9%	0.9%
10/31/24	8:30	Personal Income	Sep	0.3%	0.4%	0.2%
10/31/24	9:45	Chicago Purchasing Managers	Oct	46.0	-	46.6
11/01/24	8:30	Change in Nonfarm Payrolls	Oct	100k	120k	254k
11/01/24	8:30	Private Payrolls	Oct	75k	100k	223k
11/01/24	8:30	Unemployment Rate	Oct	4.2%	4.1%	4.1%
11/01/24	8:30	Average Hourly Earnings mom	Oct	0.5%	0.3%	0.4%
11/01/24	8:30	Average Weekly Hours	Oct	34.1	34.2	34.2
11/01/24	10:00	Construction Spending (mom)	Sep	0.5%	0.0%	-0.1%
11/01/24	10:00	ISM Manufacturing	Oct	47.5	47.6	47.2
11/01/24	All day	Total Vehicle Sales	Oct	15.8M	15.8M	15.8M
Source: Bloomberg, BofA Global Research BofA GLOBAL RESEARCH

Federal Reserve Speakers

Exhibit 7: Upcoming policy speakers
No key speaking engagements
For an accessible version Merrill clients call 800-637-7455; Merrill Edge Self-Directed clients call 877-653-4732
Date	Time	Speaker

		Fed blackout period

Source: Bloomberg BofA GLOBAL RESEARCH

Exhibit 8: Summary of Fed speak in the previous week
Below is a summary of key quotes from Fed speakers over the past weeks
For an accessible version Merrill clients call 800-637-7455; Merrill Edge Self-Directed clients call 877-653-4732
Speaker	Date	Quote
Hammack (Cleveland)	24-Oct	"We have made good progress, but inflation is still running above the FOMC's 2% objective."
Logan (Dallas)	21-Oct	"If the economy evolves as I currently expect, a strategy of gradually lowering the policy rate toward a more normal or neutral level can help manage the risks and achieve our goals."
Kashkari (Minneapolis)	21-Oct	"Right now I am forecasting some more modest cuts over the next several quarters to get to something around neutral, but it's going to depend on the data."
Schmid (Kansas City)	21-Oct	"While I support dialing back the restrictiveness of policy, my preference would be to avoid outsized moves, especially given uncertainty over the eventual destination of policy and my desire to avoid contributing to financial market volatility."
Daly (San Francisco)	21-Oct	"So far, I haven't seen any information that would suggest we wouldn't continue to reduce the interest rate."
Bostic (Atlanta)	15-Oct	"The question everybody asks us is 'how fast?' I think it depends on what happens in the labor market and what happens with inflation."
Daly (San Francisco)	15-Oct	"Labor force participation for prime-age workers has reached new highs."
Waller (Governor)	14-Oct	"I view the totality of the data as saying monetary policy should proceed with more caution on the pace of rate cuts than was needed at the Sept. meeting."
Kashkari (Minneapolis)	14-Oct	He said the labor market remains strong and that the most recent jobs report "is encouraging that a rapid labor weakening does not appear to be imminent."
Logan (Dallas)	11-Oct	"The recent data that we've been seeing on inflation has been very welcome."
Bostic (Atlanta)	10-Oct	"This choppiness to me is along the lines of maybe we should take a pause in November. I'm definitely open to that."
Logan (Dallas)	9-Oct	"Following last month's half-percentage-point cut in the fed funds rate, a more gradual path back to a normal policy stance will likely be appropriate from here."
Jefferson (Vice Chair)	8-Oct	"The balance of risks to our two mandates has changed - as risks to inflation have diminished and risks to employment have risen, these risks have been brought roughly into balance."
Musalem (St. Louis)	7-Oct	"Patience has served the FOMC well in its pursuit of price stability and remains appropriate now, but I will not prejudge the size or timing of future adjustments to policy."
Goolsbee (Chicago)	3-Oct	"Inflation is coming down and is close to target, unemployment has come up and the job market is basically where we would want it to be. Rates need to come down over the next 12 months by a lot."
Barkin (Richmond)	2-Oct	"Victory means different things to different people, and while we have made real progress there remains significant uncertainty on both inflation and employment."
Powell (Chair)	30-Sep	"Looking forward, if the economy evolves broadly as expected, policy will move over time toward a more neutral stance."
Barr (VC Supervision)	26-Sep	"It is vital that uninsured depositors have confidence that their funds will be readily available for withdrawal, if needed"
Williams (NY)	26-Sep	Announcement of formation of a body of private market participants to monitor the use of interest-rate benchmarks, reference rates, across financial markets
Source: Bloomberg, BofA Global Research BofA GLOBAL RESEARCH

Exhibit 9: BofA US Economics Dove-Hawk chart
This year the regional presidents voting on the FOMC (Federal Open Market Committee) will be Daly, Hammack, Bostic and Barkin

Source: FRB, BofA Global Research BofA GLOBAL RESEARCH

Weekly spending update

Exhibit 10: Aggregated daily card spending growth per household (HH) by major category (year-over-year (y/y) % change of the 7-day moving average of spending levels)
Total card spending per HH was up 1.9% y/y in the week ending Oct 19
For an accessible version Merrill clients call 800-637-7455; Merrill Edge Self-Directed clients call 877-653-4732
	10/19	10/18	10/17	10/16	10/15	10/14	10/13	10/12
Total card spending	1.9%	1.5%	1.1%	0.8%	0.5%	0.3%	0.5%	0.8%
Retail ex auto	0.9%	0.4%	0.0%	-0.2%	-1.1%	-0.8%	-1.2%	-0.8%
Airlines	1.3%	1.1%	1.1%	0.4%	-1.4%	-1.7%	-1.5%	-0.7%
Lodging	3.7%	4.1%	5.2%	4.8%	3.5%	3.9%	2.3%	1.7%
Entertainment	3.5%	2.8%	6.2%	7.0%	5.0%	4.0%	4.3%	2.3%
Restaurants & bars	3.6%	3.5%	3.7%	3.4%	2.2%	1.7%	0.3%	-0.4%
Transit	1.7%	1.0%	0.1%	0.1%	-0.6%	-1.7%	-0.9%	-1.4%
Gas	-9.7%	-9.9%	-10.4%	-11.3%	-12.5%	-12.1%	-12.0%	-11.7%
Clothing	5.5%	4.8%	4.2%	2.8%	-0.2%	-1.0%	-3.7%	-4.9%
Furniture	-2.1%	-2.9%	-2.4%	-3.1%	-6.1%	-7.3%	-10.1%	-10.6%
Department store	4.9%	5.8%	6.7%	6.9%	5.0%	6.0%	5.9%	4.4%
Home improvement	-0.7%	-1.2%	-1.3%	-1.9%	-3.4%	-2.5%	-2.3%	-2.4%
Online electronics	2.7%	1.3%	3.1%	-0.6%	-1.6%	-3.1%	-3.8%	-3.7%
Grocery	1.0%	0.8%	0.8%	0.3%	-1.2%	-0.2%	-0.1%	0.8%
General Merchandise	5.7%	5.1%	4.9%	4.7%	3.1%	3.9%	2.8%	3.1%
Total B&M retail	0.4%	0.1%	0.1%	-0.5%	-2.2%	-2.0%	-2.8%	-2.7%
Total online retail	2.8%	1.5%	0.4%	0.7%	1.7%	2.4%	2.9%	4.3%
Total card debit	2.0%	1.7%	1.4%	1.3%	0.7%	0.8%	1.0%	1.2%
Total card credit	1.8%	1.1%	0.7%	0.2%	0.3%	-0.4%	-0.1%	0.2%
Source: BAC internal data. Note: The 1-yr % change shows the change between the current date at the head of the table column and its comparable date a year ago. Total card spending includes total BAC card activity, which captures retail sales and services that are paid with cards. Does not include ACH payments. B&M (Brick & Mortar) retail means retail purchases at the store. Online electronics and total online retail correspond to purchases in which the card was not present. These are largely online purchases but could include purchases made over the phone. BofA GLOBAL RESEARCH

See the report, BofA on USA: Weekly spending update through Oct 19 for methodology, limitations, and disclaimers related to BAC card data.

Core views

Growth: A bumpier landing

In response to softer-than-expected labor data, we have revised down job and GDP growth for 2025. We now expect 1.6% 4Q/4Q growth next year. Our downward revisions are mostly reflected in spending and fixed investment. They partly validate a more dovish Fed. Risks to our revised outlook appear balanced. The election looms large over our forecasts for 2025 and beyond (see US Economic Viewpoint: A bumpier landing).

Inflation: Stuck above target

We have also made small revisions to our inflation forecasts to match the new growth trajectory. Softer demand should weigh on inflation next year. But we are still likely to stay a little above target. And then for 2026, the dovish Fed reaction function raises the risk that we get stuck a few tenths above target, instead of continuing to drift back down to target as in our earlier forecast. Therefore, we now see core PCE inflation ending 2026 at 2.3% q4/q4.

Labor market: Softer, but not collapsing

Why are we now more concerned about the labor market in the near term? In a nutshell, the household and establishment surveys, which comprise the monthly jobs report, are both raising red flags. For one, the unemployment rate has risen significantly since early 2023, triggering the "Sahm-rule" recession indicator. For another, job growth has been narrowly based, slowing and downwardly revised. In our view, there are valid reasons to not be overly concerned about these issues but the totality of the data does warrant greater caution.

Monetary policy: A gradual cutting cycle

After cutting rates by 50bp in September, we expect the Fed to cut by 25bp at each of its next four meetings. At that point, the fed funds rate will be near the upper bound of where Fed participants judge neutral rates to be in the longer run. Therefore, we expect the Fed to slow the pace of cuts to 25bp per quarter beginning in 2Q 2025 and continuing through year-end. In total, we expect the Fed to cut rates by 225bp to a terminal of 3.0-3.25% by yearend 2025 (see Federal Reserve Watch: No need for another 50).

Economic forecast summary

Exhibit 11: BofA US economic outlook
We expect GDP growth to slow to 1.5% q/q saar for the first three quarters of 2025 before improving to 2.0% by the fourth quarter of 2025
For an accessible version Merrill clients call 800-637-7455; Merrill Edge Self-Directed clients call 877-653-4732
	1Q 24	2Q 24	3Q 24	4Q 24	1Q 25	2Q 25	3Q 25	4Q 25	1Q 26	2Q 26	3Q 26	4Q 26	2024	2025	2026
Real Economic Activity, % SAAR
Real GDP	1.6	3.0	2.5	2.0	1.5	1.5	1.5	2.0	2.0	2.0	2.5	2.5	2.7	1.8	2.0
% Change, Year Ago	2.9	3.0	2.6	2.3	2.2	1.9	1.6	1.6	1.8	1.9	2.1	2.2
Final Sales	2.1	2.0	2.0	2.0	1.5	1.5	1.5	2.0	2.0	2.0	2.5	2.5	2.5	1.6	1.8
Domestic Demand	2.8	2.9	2.5	2.0	1.5	1.5	1.5	2.0	2.0	2.0	2.5	2.5	2.8	1.8	2.0
Consumer Spending	1.9	2.8	2.5	2.0	1.5	1.5	1.5	2.0	2.0	2.0	2.5	2.5	2.5	1.7	2.0
Residential Investment	13.7	-2.8	1.0	1.0	1.5	1.5	1.5	2.0	2.0	2.0	2.5	2.5	4.6	1.2	2.2
Nonresidential Investment	4.5	3.9	3.0	2.5	2.0	2.0	2.0	2.5	3.0	3.0	3.5	3.5	3.8	2.5	2.8
Structures	6.2	0.2	1.5	1.5	1.0	1.0	1.0	1.5	1.5	1.5	2.0	2.0	4.2	1.2	1.7
Equipment	0.3	9.9	2.5	2.0	1.5	1.5	1.5	2.0	2.0	2.0	2.5	2.5	3.0	2.3	2.2
Intellectual Property	7.5	0.7	4.5	4.0	3.0	3.0	3.0	3.5	4.0	4.0	4.5	4.5	4.4	3.4	4.0
Government	1.8	3.0	1.5	1.5	1.0	1.0	1.0	1.0	1.0	1.0	1.0	1.0	2.9	1.3	1.0
Exports	1.9	1.0	2.5	2.5	2.0	2.0	2.0	2.0	2.5	2.5	2.5	2.5	2.6	2.1	2.3
Imports	6.1	7.6	3.5	3.0	2.0	2.0	2.0	2.5	2.5	3.0	3.5	3.5	4.7	2.7	2.7
Net Exports (Bil 12$)	-977	-1036	-1049	-1061	-1065	-1070	-1077	-1084	-1094	-1105	-1121	-1137	-1031	-1074	-1114
Contribution to growth (ppts) &&	-0.6	-0.9	-0.2	-0.2	0.0	0.0	-0.1	-0.1	-0.1	-0.1	-0.2	-0.2	-0.4	-0.1	-0.1
Inventory Accumulation (Bil 12$)	17.7	71.7	86.0	95.0	104.0	113.0	122.0	131.0	140.0	149.0	158.0	167.0	67.7	117.7	153.7
Contribution to growth (ppts) ()	-0.5	1.1	0.3	0.2	0.2	0.2	0.2	0.1	0.1	0.1	0.1	0.1	0.2	0.2	0.1
Nominal GDP (Bil $, SAAR)	28624	29017	29292	29560	29843	30119	30389	30697	31013	31333	31699	32076	29123	30262	31530
% SAAR	4.7	5.6	3.8	3.7	3.9	3.8	3.6	4.1	4.2	4.2	4.7	4.8	5.1	3.9	4.2
Key Indicators
Fed Funds Rate (midpoint, % EOP)	5.375	5.375	4.875	4.375	3.875	3.625	3.375	3.125	3.125	3.125	3.125	3.125	4.375	3.125	3.125
Industrial Production (% SAAR)	-1.2	2.5	-0.5	0.5	1.0	1.5	1.5	1.5	1.5	1.5	1.5	1.5	-0.2	0.9	1.3
Capacity Utilization (%)	78.3	78.0	77.5	77.5	77.5	78.0	78.0	78.0	78.5	78.5	78.5	79.0	77.7	78.0	78.6
Nonfarm Payrolls (Avg mom ch, 000s)	267	147	186	100	100	75	75	125	125	125	150	150	175	94	138
Civilian Unemployment Rate (%)	3.8	4.0	4.2	4.3	4.4	4.4	4.5	4.5	4.4	4.3	4.3	4.2	4.0	4.5	4.3
Civilian Participation Rate (%)	62.6	62.6	62.7	62.7	62.7	62.7	62.6	62.6	62.6	62.6	62.5	62.5	62.6	62.7	62.5
Housing Starts (Thous. SAAR)	1405	1340	1325	1370	1375	1405	1420	1450	1460	1475	1480	1490	1360	1415	1475
Current Account (% of GDP)													-3.5	-3.3	-3.1
US Budget Balance ($bn, Fiscal Year)													-1900	-1950	-2000
Inflation
GDP Price Index (% SAAR)	3.0	2.5	1.3	1.7	2.3	2.2	2.1	2.1	2.1	2.1	2.2	2.3	2.3	2.0	2.1
% Change, Year Ago&	2.4	2.6	2.1	2.1	2.0	1.9	2.1	2.2	2.1	2.1	2.1	2.2
PCE Chain Prices (% SAAR)	3.4	2.5	1.2	1.5	2.3	2.1	2.0	2.0	2.0	2.0	2.1	2.3	2.4	1.9	2.1
% Change, Year Ago$*	2.6	2.6	2.2	2.1	1.9	1.8	2.0	2.1	2.0	2.0	2.0	2.1
Core PCE Chain Prices (% SAAR)	3.7	2.8	1.9	2.3	2.3	2.3	2.3	2.2	2.2	2.3	2.3	2.4	2.7	2.3	2.3
% Change, Year Ago$	2.9	2.6	2.6	2.7	2.3	2.2	2.3	2.3	2.3	2.2	2.2	2.3
CPI, Consumer Prices (% SAAR)	3.8	2.8	1.2	2.1	2.7	2.6	1.9	1.7	2.2	2.5	1.6	2.6	2.9	2.2	2.1
% Change, Year Ago!	3.2	3.2	2.6	2.5	2.2	2.2	2.3	2.2	2.1	2.1	2.0	2.2
CPI ex Food & Energy ( % SAAR)	4.2	3.2	2.2	3.1	2.7	2.7	2.6	2.5	2.5	2.7	2.8	2.9	3.4	2.7	2.6
% Change, Year Ago@	3.8	3.4	3.2	3.2	2.8	2.7	2.8	2.6	2.6	2.6	2.6	2.7
Source: BofA Global Research BofA GLOBAL RESEARCH

Rates and dollar forecast

Table 1: Rates and dollar forecast
We think the Fed will cut 50bp in 4Q24 and 125bp in 2025
For an accessible version Merrill clients call 800-637-7455; Merrill Edge Self-Directed clients call 877-653-4732
	Spot	24-Dec	25-Mar	25-Jun	25-Sep	25-Dec
Interest rates
Fed Funds	4.83	4.25-4.50	3.75-4.00	3.50-3.75	3.25-3.50	3.00-3.25
Fed Effective Rate	4.83	4.38	3.88	3.63	3.38	3.13
2-Year T-Note	4.07	3.65	3.60	3.50	3.40	3.30
5-Year T-Note	4.02	3.60	3.60	3.60	3.55	3.50
10-Year T-Note	4.20	3.75	3.75	3.75	3.75	3.75
30-Year T-Bond	4.46	4.10	4.15	4.15	4.20	4.20
Dollar
EUR-USD	1.08	1.12	1.12	1.15	1.15	1.17
USD-JPY	152	151	152	151	149	147
USD-CAD	1.39	1.35	1.34	1.32	1.32	1.32
AUD-USD	0.66	0.69	0.70	0.70	0.71	0.72
NZD-USD	0.60	0.61	0.62	0.62	0.63	0.64
GBP-USD	1.30	1.35	1.35	1.39	1.39	1.41
USD-CHF	0.87	0.89	0.91	0.90	0.92	0.94
USD-SEK	10.57	10.09	9.91	9.57	9.48	9.23
USD-NOK	10.94	10.00	9.73	9.39	9.30	9.06
USD-CNY	7.12	7.30	7.30	7.20	7.10	6.90
USD-MXN	19.83	20.50	20.75	21.00	21.25	21.50
Source: BofA Global Research BofA GLOBAL RESEARCH

Rolling calendar of business indicators

Key economic data over the next three weeks
Next week the focus will be on personal income & outlays and the employment report
For an accessible version Merrill clients call 800-637-7455; Merrill Edge Self-Directed clients call 877-653-4732
Monday	Tuesday	Wednesday	Thursday	Friday
Oct 28	Oct 29	Oct 30	Oct 31	Nov 1
	9:00 am: S&P CoreLogic CS HPI - Aug 10:00 am: Conference Board Confidence - Oct	7:00 am: MBA Mortgage Applications - week ending 10/25/2024 8:15 am: ADP Employment - Oct 8:30 am: GDP - 3Q (A) 8:30 am: Advance Goods Trade Balance - Sep 10:00 am: Pending Home Sales - Sep	8:30 am: Initial Jobless Claims - week ending 10/26/2024 8:30 am: Employment Cost Index - 3Q 8:30 am: Personal Income & Outlays - Sep 9:45 am: Chicago PMI - Oct	8:30 am: Employment Report - Oct 9:45 am: S&P Global US Manufacturing PMI - Oct F 10:00 am: Construction Spending - Sep 10:00 am: ISM manufacturing - Oct All Day: Wards Auto Sales - Oct
Nov 4	Nov 5	Nov 6	Nov 7	Nov 8
10:00 am: Factory orders - Sep	8:30 am: Trade Balance - Sep 9:45 am: S&P Global US Services PMI - Oct F 10:00 am: ISM services- Oct	7:00 am: MBA Mortgage Applications - week ending 11/01/2024	8:30 am: Initial Jobless Claims - week ending 11/02/2024 8:30 am: Productivity & Costs - 3Q (P) 10:00 am: Wholesale Inventories - Sep F 2:00 pm: FOMC Rates Decision	10:00 am: U. of Mich Sentiment - Nov (P)
Nov 11	Nov 12	Nov 13	Nov 14	Nov 15
Veterans Day	6:00 am: NFIB Small Bus. Optimism - Oct 2:00 pm: Senior Loan Officer Survey	7:00 am: MBA Mortgage Applications - week ending 11/08/2024 8:30 am: Consumer Price Index - Oct 2:00 pm: Monthly Budget Statement - Oct	8:30 am: Initial Jobless Claims - week ending 11/09/2024 8:30 am: Producer Price Index - Oct	8:30 am: Advance Retail Sales - Oct 8:30 am: Import Price Index - Oct 8:30 am: Empire Manufacturing - Nov 9:15 am: Industrial Production - Oct 10:00 am: Business Inventories - Sep
*Projections- subject to revision as additional data become available. P - preliminary reading, S - second reading, T - third reading, F - final reading
Source: Bloomberg BofA GLOBAL RESEARCH

CPI and PCE Forecast tabl es

Exhibit 12: CPI monthly forecast table
We expect CPI inflation to moderate over the course of our forecast horizon
For an accessible version Merrill clients call 800-637-7455; Merrill Edge Self-Directed clients call 877-653-4732
	Non-seasonally Adjusted						Seasonally Adjusted
	Headline CPI			Energy			Headline CPI					Core CPI
	Level	m/m	y/y	Level	m/m	y/y	Level	m/m	y/y	q/q saar	y/y (quarterly)	Level	m/m	y/y	q/q saar	y/y (quarterly)
2023: Jan	299.17	0.8	6.4	283.33	3.1	8.7	300.36	0.5	6.4			302.71	0.4	5.5
2023: Feb	300.84	0.6	6.0	281.67	-0.6	5.2	301.51	0.4	6.0			304.12	0.5	5.5
2023: Mar	301.84	0.3	5.0	279.08	-0.9	-6.4	301.74	0.1	4.9	3.8	5.7	305.11	0.3	5.6	4.9	5.5
2023: Apr	303.36	0.5	4.9	283.35	1.5	-5.1	303.03	0.4	4.9			306.54	0.5	5.5
2023: May	304.13	0.3	4.0	279.82	-1.2	-11.7	303.37	0.1	4.1			307.65	0.4	5.3
2023: Jun	305.11	0.3	3.0	283.85	1.4	-16.7	304.00	0.2	3.1	3.0	4.0	308.25	0.2	4.9	4.7	5.2
2023: Jul	305.69	0.2	3.2	284.83	0.3	-12.5	304.63	0.2	3.3			308.95	0.2	4.7
2023: Aug	307.03	0.4	3.7	294.33	3.3	-3.6	306.19	0.5	3.7			309.66	0.2	4.4
2023: Sep	307.79	0.2	3.7	296.00	0.6	-0.5	307.29	0.4	3.7	3.4	3.6	310.64	0.3	4.1	3.0	4.4
2023: Oct	307.67	0.0	3.2	286.75	-3.1	-4.5	307.53	0.1	3.2			311.39	0.2	4.0
2023: Nov	307.05	-0.2	3.1	277.03	-3.4	-5.4	308.02	0.2	3.1			312.35	0.3	4.0
2023: Dec	306.75	-0.1	3.4	269.38	-2.8	-2.0	308.74	0.2	3.3	2.7	3.2	313.21	0.3	3.9	3.4	4.0
2024: Jan	308.42	0.5	3.1	270.42	0.4	-4.6	309.69	0.3	3.1			314.44	0.4	3.9
2024: Feb	310.33	0.6	3.2	276.33	2.2	-1.9	311.05	0.4	3.2			315.57	0.4	3.8
2024: Mar	312.33	0.6	3.5	285.00	3.1	2.1	312.23	0.4	3.5	3.8	3.2	316.70	0.4	3.8	4.2	3.8
2024: Apr	313.55	0.4	3.4	290.76	2.0	2.6	313.21	0.3	3.4			317.62	0.3	3.6
2024: May	314.07	0.2	3.3	290.14	-0.2	3.7	313.23	0.0	3.3			318.14	0.2	3.4
2024: Jun	314.18	0.0	3.0	286.68	-1.2	1.0	313.05	-0.1	3.0	2.8	3.2	318.35	0.1	3.3	3.2	3.4
2024: Jul	314.54	0.1	2.9	287.87	0.4	1.1	313.53	0.2	2.9			318.87	0.2	3.2
2024: Aug	314.80	0.1	2.5	282.61	-1.8	-4.0	314.12	0.2	2.6			319.77	0.3	3.3
2024: Sep	315.30	0.2	2.4	275.74	-2.4	-6.8	314.69	0.2	2.4	1.2	2.6	320.77	0.3	3.3	2.2	3.2
2024: Oct	315.10	-0.1	2.4	268.70	-2.6	-6.3	314.97	0.1	2.4			321.54	0.2	3.3
2024: Nov	314.56	-0.2	2.4	263.20	-2.0	-5.0	315.55	0.2	2.4			322.29	0.2	3.2
2024: Dec	314.41	0.0	2.5	259.61	-1.4	-3.6	316.56	0.3	2.5	2.0	2.5	323.01	0.2	3.1	3.1	3.2
2025: Jan	315.69	0.4	2.4	261.73	0.8	-3.2	317.03	0.1	2.4			323.73	0.2	3.0
2025: Feb	316.92	0.4	2.1	262.56	0.3	-5.0	317.72	0.2	2.1			324.46	0.2	2.8
2025: Mar	318.71	0.6	2.0	270.30	2.9	-5.2	318.67	0.3	2.1	2.7	2.2	325.19	0.2	2.7	2.7	2.8
2025: Apr	319.73	0.3	2.0	274.43	1.5	-5.6	319.38	0.2	2.0			325.90	0.2	2.6
2025: May	320.46	0.2	2.0	275.43	0.4	-5.1	319.60	0.1	2.0			326.61	0.2	2.7
2025: Jun	321.84	0.4	2.4	282.00	2.4	-1.6	320.64	0.3	2.4	2.6	2.1	327.31	0.2	2.8	2.7	2.7
2025: Jul	322.00	0.0	2.4	278.77	-1.1	-3.2	320.85	0.1	2.3			328.01	0.2	2.9
2025: Aug	322.41	0.1	2.4	277.96	-0.3	-1.6	321.56	0.2	2.4			328.70	0.2	2.8
2025: Sep	322.33	0.0	2.2	271.10	-2.5	-1.7	321.78	0.1	2.3	1.9	2.3	329.39	0.2	2.7	2.6	2.8
2025: Oct	322.15	-0.1	2.2	265.00	-2.2	-1.4	322.00	0.1	2.2			330.07	0.2	2.7
2025: Nov	321.71	-0.1	2.3	262.27	-1.0	-0.4	322.72	0.2	2.3			330.76	0.2	2.6
2025: Dec	321.36	-0.1	2.2	258.46	-1.5	-0.4	323.52	0.2	2.2	1.7	2.2	331.44	0.2	2.6	2.5	2.6
2026: Jan	322.54	0.4	2.2	259.54	0.4	-0.8	323.87	0.1	2.2			332.12	0.2	2.6
2026: Feb	323.65	0.3	2.1	259.16	-0.1	-1.3	324.43	0.2	2.1			332.80	0.2	2.6
2026: Mar	325.39	0.5	2.1	267.30	3.1	-1.1	325.31	0.3	2.1	2.2	2.1	333.51	0.2	2.6	2.5	2.6
2026: Apr	326.42	0.3	2.1	271.24	1.5	-1.2	326.06	0.2	2.1			334.25	0.2	2.6
2026: May	327.30	0.3	2.1	273.35	0.8	-0.8	326.43	0.1	2.1			334.98	0.2	2.6
2026: Jun	328.31	0.3	2.0	276.07	1.0	-2.1	327.09	0.2	2.0	2.5	2.1	335.75	0.2	2.6	2.7	2.6
2026: Jul	328.31	0.0	2.0	270.30	-2.1	-3.0	327.17	0.0	2.0			336.54	0.2	2.6
2026: Aug	328.82	0.2	2.0	269.39	-0.3	-3.1	327.98	0.2	2.0			337.33	0.2	2.6
2026: Sep	328.88	0.0	2.0	263.83	-2.1	-2.7	328.28	0.1	2.0	1.6	2.0	338.12	0.2	2.7	2.8	2.6
2026: Oct	329.17	0.1	2.2	262.05	-0.7	-1.1	329.01	0.2	2.2			338.93	0.2	2.7
2026: Nov	328.89	-0.1	2.2	259.81	-0.9	-0.9	329.92	0.3	2.2			339.74	0.2	2.7
2026: Dec	328.66	-0.1	2.3	256.17	-1.4	-0.9	330.87	0.3	2.3	2.6	2.2	340.55	0.2	2.8	2.9	2.7
Source: Bureau of Labor Statistics, BofA Global Research BofA GLOBAL RESEARCH

Exhibit 13: PCE inflation monthly forecast table (Seasonally adjusted)
We expect PCE inflation to moderate over the course of our forecast horizon
For an accessible version Merrill clients call 800-637-7455; Merrill Edge Self-Directed clients call 877-653-4732
	%y/y				% m/m
	Headline	Core	Core goods	Core services	Headline	Core	Core goods	Core services
2022: Jan	6.31%	5.41%	6.91%	4.87%	0.49%	0.48%	0.92%	0.32%
2022: Feb	6.59%	5.65%	7.66%	4.93%	0.63%	0.45%	0.57%	0.41%
2022: Mar	6.97%	5.63%	7.47%	4.96%	0.88%	0.38%	-0.02%	0.52%
2022: Apr	6.70%	5.35%	6.35%	4.99%	0.31%	0.34%	0.10%	0.43%
2022: May	6.80%	5.19%	5.72%	5.00%	0.61%	0.36%	0.29%	0.39%
2022: Jun	7.25%	5.32%	5.72%	5.19%	0.94%	0.59%	0.63%	0.57%
2022: Jul	6.76%	5.11%	5.50%	4.98%	0.03%	0.23%	0.09%	0.28%
2022: Aug	6.64%	5.36%	5.61%	5.27%	0.29%	0.58%	0.53%	0.59%
2022: Sep	6.66%	5.61%	5.75%	5.56%	0.32%	0.44%	0.29%	0.49%
2022: Oct	6.46%	5.46%	4.68%	5.74%	0.44%	0.34%	-0.09%	0.49%
2022: Nov	6.02%	5.20%	3.92%	5.65%	0.28%	0.30%	-0.19%	0.48%
2022: Dec	5.51%	4.95%	3.16%	5.59%	0.15%	0.36%	0.01%	0.49%
2023: Jan	5.53%	4.95%	2.65%	5.76%	0.51%	0.47%	0.42%	0.49%
2023: Feb	5.21%	4.86%	2.26%	5.79%	0.33%	0.37%	0.18%	0.44%
2023: Mar	4.42%	4.77%	2.49%	5.58%	0.13%	0.29%	0.20%	0.32%
2023: Apr	4.46%	4.78%	2.50%	5.58%	0.35%	0.35%	0.11%	0.43%
2023: May	3.98%	4.71%	2.49%	5.49%	0.14%	0.29%	0.28%	0.30%
2023: Jun	3.26%	4.37%	1.71%	5.31%	0.25%	0.26%	-0.15%	0.40%
2023: Jul	3.37%	4.27%	1.18%	5.36%	0.14%	0.14%	-0.43%	0.33%
2023: Aug	3.39%	3.78%	0.56%	4.91%	0.30%	0.10%	-0.08%	0.16%
2023: Sep	3.42%	3.66%	0.25%	4.85%	0.35%	0.32%	-0.02%	0.43%
2023: Oct	2.99%	3.44%	0.37%	4.52%	0.03%	0.13%	0.04%	0.17%
2023: Nov	2.70%	3.22%	0.22%	4.27%	0.00%	0.09%	-0.34%	0.24%
2023: Dec	2.70%	3.04%	-0.04%	4.11%	0.15%	0.18%	-0.26%	0.33%
2024: Jan	2.61%	3.06%	-0.51%	4.30%	0.42%	0.50%	-0.05%	0.68%
2024: Feb	2.59%	2.93%	-0.41%	4.08%	0.31%	0.24%	0.29%	0.22%
2024: Mar	2.81%	2.98%	-0.53%	4.19%	0.34%	0.34%	0.07%	0.43%
2024: Apr	2.72%	2.89%	-0.54%	4.06%	0.26%	0.26%	0.11%	0.30%
2024: May	2.57%	2.67%	-0.99%	3.92%	-0.01%	0.08%	-0.17%	0.16%
2024: Jun	2.44%	2.63%	-0.74%	3.78%	0.12%	0.22%	0.10%	0.26%
2024: Jul	2.45%	2.65%	-0.42%	3.69%	0.15%	0.16%	-0.11%	0.24%
2024: Aug	2.24%	2.68%	-0.52%	3.76%	0.09%	0.13%	-0.18%	0.23%
2024: Sep	2.52%	2.6%	-0.33%	3.62%	0.20%	0.27%	0.17%	0.30%
2024: Oct	2.55%	2.7%	-0.37%	3.68%	0.10%	0.17%	0.00%	0.22%
2024: Nov	2.65%	2.8%	-0.03%	3.69%	0.16%	0.18%	-0.01%	0.25%
2024: Dec	2.66%	2.8%	0.22%	3.60%	0.24%	0.18%	0.00%	0.24%
2025: Jan	2.37%	2.5%	0.28%	3.18%	0.16%	0.20%	0.00%	0.27%
2025: Feb	2.33%	2.4%	0.01%	3.22%	0.20%	0.21%	0.02%	0.27%
2025: Mar	2.19%	2.3%	-0.04%	3.05%	0.24%	0.20%	0.02%	0.26%
2025: Apr	2.13%	2.2%	-0.13%	3.00%	0.20%	0.19%	0.02%	0.25%
2025: May	2.25%	2.3%	0.06%	3.09%	0.12%	0.19%	0.02%	0.25%
2025: Jun	2.22%	2.3%	-0.02%	3.08%	0.26%	0.19%	0.02%	0.25%
2025: Jul	2.26%	2.3%	0.10%	3.08%	0.12%	0.19%	0.02%	0.25%
2025: Aug	2.32%	2.4%	0.30%	3.10%	0.20%	0.19%	0.02%	0.25%
2025: Sep	2.24%	2.3%	0.16%	3.04%	0.12%	0.19%	0.02%	0.25%
2025: Oct	2.25%	2.3%	0.18%	3.04%	0.10%	0.18%	0.02%	0.23%
2025: Nov	2.24%	2.3%	0.21%	3.02%	0.19%	0.18%	0.02%	0.23%
2025: Dec	2.24%	2.3%	0.23%	3.00%	0.20%	0.18%	0.02%	0.23%
Source: BEA, BofA Global Research BofA GLOBAL RESEARCH

Federal Reserve Balance Sheet

Exhibit 14: The balance sheet of the Federal Reserve ($bn, Wednesday, end of period values)
Factors affecting reserve balances of depository institutions (H.4.1 Table 1)
For an accessible version Merrill clients call 800-637-7455; Merrill Edge Self-Directed clients call 877-653-4732
	23 Oct	7-day chg	4 week chg	Chg since June 1, 2022
Supplying reserve funds (Federal Reserve assets)
Reserve Bank credit outstanding	6988.2	-9.4	-49.9	-1890.4
Securities held outright	6638.6	-3.4	-29.9	-1842.0
US Treasuries	4357.7	0.1	-26.5	-1413.1
Federal Agency	2.3	0.0	0.0	0.0
Mortgage-backed securities	2278.6	-3.5	-3.5	-428.8
Unamortized premiums on securities held outright	255.1	-0.6	-1.9	-82.1
Unamortized discounts on securities held outright	-23.8	0.1	0.3	0.7
Repurchase agreements	0.0	0.0	-0.1	0.0
Foreign official (FIMA repo facility)	0.0	0.0	0.0	0.0
Others	0.0	0.0	-0.1	0.0
Loans	63.7	-7.3	-26.1	43.0
of which:
Discount window (primary and secondary credit)	1.8	-0.1	0.4	0.9
Paycheck protection program (PPPLF)	2.1	-0.1	-0.2	-17.7
Bank Term Funding Program (BTFP)	59.7	-7.1	-26.2	59.7
Other credit extensions	0.0	0.0	0.0	0.0
Other factors supplying reserve funds	54.6	1.8	7.8	-10.1
Total factors supplying reserve funds	7080.7	-9.6	-50.6	-1883.7

Absorbing reserve funds (Federal Reserve liabilities)
Currency in circulation	2355.5	-3.3	4.9	75.5
Reverse repo agreements	668.6	-0.4	-164.7	-1561.9
Foreign official accounts	397.8	0.8	-19.3	132.3
Others (ON RRP)	270.8	-1.2	-145.4	-1694.2
Treasury cash holdings	0.3	0.0	0.0	0.2
Other deposits with Federal Reserve Banks	977.3	-1.0	28.2	-51.1
of which:
Treasury General Account	817.4	2.7	38.5	36.8
Treasury contributions to credit facilities	5.0	0.0	0.0	-13.0
Other Federal Reserve liabilities and capital	-154.5	-4.5	-5.9	-204.5

Factors absorbing reserves, other than reserves	3852.2	-9.2	-137.5	-1754.8
Reserve balances with Federal Reserve banks	3228.5	-0.4	86.9	-128.9
Source: Federal Reserve, Haver Analytics, BofA Global Research. Note: Quantitative tightening began on June 1, 2022. BofA GLOBAL RESEARCH

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US Economic Weekly

Spotlight on trade policy

US Economic Weekly

Spotlight on trade policy

Weekly viewpoint: Spotlight on trade

Data preview: Strong September retail sales

Data preview: Distorted employment

Spotlight on trade policy

The calm before the storm

China tariffs as a foreign policy tool

FX, pass-through & substitution mitigate inflation shock

Mexico: the concern is again China

Tariffs within North America appear unlikely

Tariffs as a fiscal policy tool: does the math work?

Inflation up, policy rates up, interest expenses up

Harris would be status quo on trade

US GDP Tracking

Advance 3Q GDP expected to print at 3.0% q/q saar

Data in the past week

Data in the week ahead

Federal Reserve Speakers

Weekly spending update

Core views

Growth: A bumpier landing

Inflation: Stuck above target

Labor market: Softer, but not collapsing

Monetary policy: A gradual cutting cycle

Economic forecast summary

Rates and dollar forecast

Rolling calendar of business indicators

CPI and PCE Forecast tabl es

Federal Reserve Balance Sheet

Important Disclosures

Other Important Disclosures

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Research Analysts