Goldman Sachs, Citigroup, and Morgan Stanley predict the Fed's future rate cut path

According to Mars Finance, several of Wall Street's largest brokerages, including Goldman Sachs, Citigroup, and Morgan Stanley, have made predictions about the Fed's future rate cut path. Bank of America is the only large brokerage that has raised its forecast for the Fed's 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 down 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 about whether the Fed wants to deliver a hawkish surprise." Goldman Sachs maintained its forecast for the Fed to cut interest rates by 25 basis points at its November and December meetings this year, but said it now expects the Fed to cut interest rates by 25 basis points from November 2024 to June 2025, reducing the terminal rate to 3.25%-3.50% by mid-2025. Its earlier forecasts saw the Fed cut rates quarterly in 2025. Goldman Sachs economists also added that whether the Fed cuts rates by another 50 basis points in November is a "close call" question that will be determined by the next two employment reports. Citi maintained its forecast for the Fed's rate cuts this year at 125 basis points, but now expects the Fed to cut 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 rate 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 rate cuts by the Fed this year. Economist Seth Carpenter and strategist Matthew Hornbach of the Morgan Stanley team said that it may choose to implement a series of conventional rate cuts (25 basis points) by mid-2025, two rate cuts this year and four rate 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 a hard landing scenario and 150 basis points in a soft landing scenario. Either way, "there is plenty of room for the Fed to ease," Wells Fargo said. Based on market pricing, traders expect the Fed to cut rates by about 70 basis points by the end of this year and nearly 200 basis points by September next year. The market's expectations for the Fed's rate cut prospects are more aggressive than the dot plot.