Bank of America: Fed will cut interest rates by another 75 basis points before the end of the year

After the Federal Reserve's aggressive rate cuts, Bank of America was the only major brokerage to raise its forecast for Fed rate cuts through the rest of 2024.

The Wall Street brokerage said it expects the Federal Reserve to cut interest rates by 75 basis points in the fourth quarter, after previously forecasting a 25 basis point cut at each of the Fed's November and December meetings.

And according to Fed policymakers’ own forecasts, the federal funds rate will fall another 50 basis points by the end of 2024.

The Federal Reserve announced an extraordinary 50 basis point rate cut early Thursday, which Powell said was intended to demonstrate policymakers' commitment to maintaining low unemployment after inflation eases.

Bank of America economists said that after the larger rate cut, "we are skeptical that the Fed wants to deliver a hawkish surprise."

The brokerage firm expects the Fed to cut interest rates by another 125 basis points in 2025, bringing the federal funds target rate down to a terminal level of 2.75%-3.00% from the current range of 4.75%-5.00%.

By contrast, Federal Reserve policymakers expect to cut rates by 100 basis points next year and by 50 basis points in 2026, while warning that the outlook ahead is necessarily uncertain.

Meanwhile, Goldman Sachs maintained its forecast for the Fed to cut rates by 25 basis points at 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, bringing the terminal rate to 3.25%-3.50% by mid-2025. Its earlier forecast had the Fed cutting rates quarterly in 2025.

Citigroup maintained its forecast for the Fed to cut interest rates by 125 basis points this year, but now expects the Fed to cut interest rates by 25 basis points in December, compared with its previous forecast of 50 basis points.

Other brokerages such as Macquarie and Deutsche Bank have retained their forecasts for two more 25 basis point rate cuts from the Federal Reserve this year.

The article is forwarded from: Jinshi Data