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.

What if the Fed doesn’t cut at all?

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. 

Market snapshot

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Elsewhere

📈 American Eagle stock surges again. President Trump posted on Truth Social about Sydney Sweeney having the “HOTTEST” ad for jeans and retail investors pushed shares more than 23% higher in Monday’s trading session. The stock is up roughly 34% over the last four weeks. (Axios)

💰️Tesla granted Elon Musk a $29 billion stock package. It’s an interim compensation solution for 96 million shares of the company, and it’s set to vest over two years as long as Musk stays on as an executive. The Delaware Supreme Court is still weighing a legal battle for Musk’s prior pay package. (CNBC)

📊 President Trump’s sons will own millions of shares of a new SPAC. Eric and Donald Trump Jr. will back the New America SPAC, which aims to merge with companies that revitalize domestic manufacturing. It will target a $300 million public offering. (WSJ)

📉 Another US jobs market indicator weakened in July. The Conference Board’s Employment Trends Index fell to 107.55 last month, from 108.19 in June, according to a report out Monday. It’s now hovering at its lowest point since October 2024. (Barron’s)

Rapid-fire

• The EU will delay its planned US tariffs for 6 months to allow for trade talks (CNBC)

• Palantir crushed stratospheric earnings expectations for its Monday earnings (Barron’s)

• Earnings growth for S&P 500 companies remains robust, which bodes well for stock returns (Carson Research)

• Trend-following hedge funds have lost nearly 10% through the first half of the year (WSJ)

• President Trump threatened India with “substantially” higher tariffs over Russian oil buys (Yahoo Finance)

• Firefly Aerospace lifted its IPO range to value the company at over $6 billion (CNBC)

• Rolex and other luxury watchmakers are bracing for US tariffs on Swiss imports (Yahoo Finance)

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Last thing

About me

📰 I’m Phil Rosen, co-founder and editor-in-chief of Opening Bell Daily. I’ve published books, lived on three continents, and won awards for my journalism, which has appeared in Business Insider, Fortune, Yahoo Finance, Bloomberg and Inc. Magazine.

I write our flagship newsletter to prepare you for each trading day — unpacking markets, economic data and Wall Street with analysis you won’t find anywhere else.

Feedback? Reply to this email, ping me on X @philrosenn, or write me directly at [email protected].