Revised Outlook by BoA "75bp↓ by Year-End"
'Big Cut' Hits JP Morgan & Citi "50bp in November"
Goldman & Morgan Stanley Continue with 25bp Each
The U.S. Federal Reserve (Fed) cut interest rates for the first time in four years, but opinions among major Wall Street banks on the future interest rate path are divided, Bloomberg reported on the 19th (local time).
The Fed lowered the benchmark interest rate by 50 basis points (1bp = 0.01 percentage points) from 5.25-5.50% to 4.75-5.50% the day before and indicated through the dot plot the possibility of an additional total 50bp cut within the year. Fed Chair Jerome Powell said at the press conference, "We are not on a predetermined path," and "We will continue to make decisions at each meeting."
The market expects more aggressive rate cuts. According to the Chicago Mercantile Exchange (CME) FedWatch, the federal funds (FF) futures market reflected a 69.8% probability that the Fed will cut rates by more than 0.75 percentage points by the end of the year.
Opinions on future interest rate outlooks among Wall Street are also divided.
Bank of America (BoA) raised its rate cut forecast on the day. Initially, it predicted that the Fed would cut rates by 25bp each in November and December, but now expects a total cut of 75bp by the end of the year. It also anticipates an additional 125bp cut next year, projecting the final rate to reach 2.75-3%. BoA economists stated, "We do not believe the Fed wants to implement a hawkish (monetary tightening) surprise policy."
Michael Feroli, JP Morgan’s chief U.S. economist who accurately predicted this ‘big cut’ (a 0.50 percentage point cut in the benchmark rate) since early last month, also expects the Fed to cut rates aggressively. He explained that an additional 50bp cut is likely in November. However, he noted that such cuts would be possible only if the labor market further eases.
Citigroup expects a 50bp cut in November and a 25bp cut in December. Citigroup economists Veronica Clark and Andrew Hollenhorst said, "Risks are balanced even if rates are cut at a faster pace."
On the other hand, TD Securities expects the threshold for an additional 50bp cut by the Fed to be higher. TD Securities strategists Oscar Munoz and Gen Nadi Goldberg said, "The Fed’s future guidance is unlikely to be as dovish (monetary easing preference) as this rate decision." They foresee the Fed cutting rates by 25bp twice this year and then cutting 25bp at every meeting in 2025.
Goldman Sachs initially expected two 25bp cuts in November and December this year. However, after the rate decision the day before, it revised its forecast to expect the Fed to continue cutting rates by 25bp until June next year. This would bring the final rate in June 2025 to 3.25-3.5%. Regarding the possibility of the Fed making another 50bp cut in November, Goldman Sachs described it as "a close call," saying it will depend on the employment report.
Morgan Stanley has a similar forecast. It expects the Fed to lower rates continuously until mid-2025, with two 25bp cuts this year and four more in the first half of next year.
Mark Zianoni, an economist at Barclays, forecasted that the Fed will cut rates by 25bp in November and December, followed by three additional 25bp cuts next year.
© The Asia Business Daily(www.asiae.co.kr). All rights reserved.
