On September 19, several of Wall Street's largest brokerage firms, including Goldman Sachs, Citigroup, and Morgan Stanley, made predictions about the Federal Reserve's future path of interest rate cuts.
Bank of America is the only major brokerage firm to raise its forecast for Fed rate cuts for the rest of 2024. Bank of America expects the Fed to cut interest rates by 75 basis points in the fourth quarter and another 125 basis points in 2025, bringing the federal funds target rate from the current range of 4.75%-5.00% to a terminal level of 2.75%-3.00%. Bank of America economists said that after a larger rate cut, "we are skeptical whether the Fed wants to deliver a hawkish surprise."
Goldman maintained its forecast for the Fed to cut rates by 25 basis points at its November and December meetings, but said it now expects the Fed to cut rates by 25 basis points from November 2024 to June 2025, bringing the terminal rate to 3.25%-3.50% by mid-2025. Its earlier forecast had the Fed cutting rates quarterly in 2025. Goldman economists also added that whether the Fed cuts rates by another 50 basis points in November is a "close call" that will be determined by the next two jobs reports.
Citigroup maintained its forecast for the Fed to cut interest rates this year at 125 basis points, but now expects the Fed to cut interest rates by 25 basis points in December, compared with the previous forecast of 50 basis points. In addition, the bank expects more 25 basis point cuts in 2025, pushing the terminal rate to a range of 3%-3.25%. Other brokerages such as Macquarie and Deutsche Bank have retained their expectations of two more 25 basis point cuts from the Fed this year. Economist Seth Carpenter and strategist Matthew Hornbach of the Morgan Stanley team said that they might choose to implement a series of conventional rate cuts (25 basis points) by mid-2025, two cuts this year and four cuts in the first half of next year.
"Market uncertainty is at historic levels as the easing cycle begins in 2024," Wells Fargo strategists Michael Schumacher and Angelo Manolatos wrote. In the first year of the rate-cutting cycle, Wells Fargo predicts the Fed could end up cutting rates by as much as 350 basis points in the case of a hard landing and 150 basis points in the case of a soft landing. Either way, "there is plenty of room for the Fed to ease," Wells Fargo said.
According to market pricing, traders expect the Fed to cut interest rates by about 70 basis points by the end of this year and by nearly 200 basis points by September next year. The market's expectations for the Fed's interest rate cuts are more radical than the dot plot. (Jinshi)
