BofA Global Research raised its forecast for the Federal Reserve’s anticipated interest rate cuts for the remainder of this year to 75 basis points, after the US central bank kicked off a widely expected series of reductions on Wednesday (Sep 18).
The Fed announced a larger-than-usual half-percentage-point reduction that chair Jerome Powell said was meant to show policymakers’ commitment to sustaining a low unemployment rate now that inflation has eased.
The Wall Street brokerage said in a note it now expects the Fed to lower rates by 75 bps in the fourth quarter, compared with its earlier forecast of two 25-bp cuts in the Fed’s November and December meetings.
BofA Global Research expects another 125 bps of cuts in 2025 to bring the terminal rate to 2.75 per cent-3.00 per cent, from the current Fed fund’s target rate of 4.75 per cent-5.00 per cent.
“We think the Fed will get pushed into deeper cuts,” BofA economists said.
Following the bigger rate cut, “we are skeptical that the Fed will want to deliver a hawkish surprise”, they said.
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Separately, Goldman Sachs retained its forecast of two 25- bp cuts in the November and December meetings this year, but said it now expects consecutive 25 bps cuts from November 2024 through June 2025, bringing the terminal rate to 3.25 per cent-3.50 per cent by mid 2025.
It earlier expected quarterly pacing of cuts in 2025.
“The greater urgency suggested by today’s 50-bp cut and the acceleration in the pace of cuts that most participants projected for 2025 makes a longer series of consecutive cuts the most likely path, in our view,” Goldman Sachs economists said in a note on Wednesday.
Fed policymakers projected the benchmark interest rate to fall by another half a percentage point by 2024-end, a full percentage point next year, and half a percentage point in 2026, while cautioning the outlook that far into the future is necessarily uncertain. REUTERS
