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

BlockBeats reported that on September 19, several of Wall Street's largest brokerages, including Goldman Sachs, Citigroup, and Morgan Stanley, made predictions about the Fed's future rate cut path.

Bank of America is the only major brokerage to raise 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 maintained its forecast for the Fed to cut rates by 25 basis points at each of its November and December meetings this year, but said it now expects the Fed to cut rates by 25 basis points from November 2024 to June 2025, taking 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 125 basis points of Fed rate cuts this year, but now expects the Fed to cut rates by 25 basis points in December, compared with its 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 from the Fed this year. Seth Carpenter, an economist, and Matthew Hornbach, a strategist on the Morgan Stanley team, said that a series of conventional rate cuts (25 basis points) may be chosen 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 in 2024 begins," Wells Fargo strategists Michael Schumacher and Angelo Manolatos wrote. Wells Fargo expects that in the first year of the rate-cutting cycle, 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, "the Fed has a lot of room for easing," Wells Fargo said.

According to 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. (Jinshi)