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Bank of America Corp BAC

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Economic Moat




Federal Open Market Committee Maintains Rates at Zero, Doesn't Expect First Hike Until After 2023

Eric Compton, CFA Senior Equity Analyst

Analyst Note

| Eric Compton, CFA |

The Federal Open Market Committee issued its latest statement on Sept. 16 and, unsurprisingly, held the federal-funds rate at 0.0%-0.25%. The vote was technically not unanimous, with Robert Kaplan (Dallas Fed) and Neel Kashkari (Minneapolis Fed) voting against the action, however, their votes weren’t against holding the federal-funds rate at the current level but rather were votes for slightly different nuances to the overall statement. All things considered, there remains no debate that rates ought to be at zero for now. As we had talked about in our last note regarding the FOMC (July 29), and as had been made official in the Fed’s official updates to its policy statements (released Aug. 27), the FOMC updated the language in its latest release, which should largely allow rates to remain lower for longer. Specifically, the FOMC now states that, “with inflation running persistently below this longer run [2%] goal, the Committee will aim to achieve inflation moderately above 2 percent for some time so that inflation averages 2 percent over time.” The FOMC also stated that it expects rates at zero will be maintained until, “labor market conditions have reached levels consistent with the Committee’s assessments of maximum employment and inflation has risen to 2 percent and is on track to moderately exceed 2 percent for some time.” This leaves the FOMC plenty of room to maintain rates at zero for some time, and the committee will not be likely to preemptively raise rates to combat inflation, which had been a strategy in the past. This also gives the committee plenty of room to define “maximum employment” in ways that again allow for rates to stay lower for longer.

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Company Profile

Business Description

Bank of America is one of the largest financial institutions in the United States, with more than $2.3 trillion in assets. It is organized into four major segments: consumer banking, global wealth and investment management, global banking, and global markets. Bank of America's consumer-facing lines of business include its network of branches and deposit-gathering operations, home mortgage lending, vehicle lending, credit and debit cards, and small-business services. The company's Merrill Lynch operations provide brokerage and wealth management services, as does U.S. Trust private bank. Wholesale lines of business include investment banking, corporate and commercial real estate lending, and capital markets operations. Bank of America has operations in several countries.

100 North Tryon Street, Bank of America Corporate Center
Charlotte, NC, 28255
T +1 704 386-5681
Sector Financial Services
Industry Banks - Diversified
Most Recent Earnings Jun 30, 2020
Fiscal Year End Dec 31, 2020
Stock Type High Yield
Employees 213,000