(Bloomberg) -- Wall Street’s biggest banks are divided over how fast and deep the Federal Reserve will cut interest rates over the next year, setting the stage for jittery financial markets until the outlook clears.
Hours after the US central bank surprised most Fed watchers on Wednesday by cutting its benchmark by half a percentage point, economists at Goldman Sachs Group Inc. revised their forecast to show quarter-point reductions at every meeting from November through next June. Peers at JPMorgan Chase & Co., who’d correctly predicted this week’s shift, still see another half-point in November, but say that will depend on the state of the labor market.
In the market, traders are pricing in about 70 basis points worth of easing by the end of the year — and nearly 2 percentage points of rate cuts by next September. That’s more aggressive than the half point of cuts forecast by Fed officials in their latest dot plot by year’s end.
Here’s what economists at some of the biggest banks are saying:
Bank of America
The Fed “will get pushed into deeper cuts” with another 75 basis points coming in the fourth quarter and 125 basis points next year, economists and strategists including Aditya Bhave, Mark Cabana and Alex Cohen wrote.
Barclays
The bank continues to see the Fed cutting by 25 basis points in November and December, followed by three more quarter-point reductions in 2025, US economists led by Marc Giannoni wrote in a note. But given the Fed’s 50 basis point move Wednesday, which Barclays did not expect, they now see the target range at the end of next year falling to 3.50% to 3.75%.
Citigroup
Citi economists Veronica Clark and Andrew Hollenhorst kept their forecast for another 75 basis points of reductions this year, with 50 basis points coming November and 25 basis points in December. “Risks remain balanced to an even faster pace of cuts,” they wrote in a note. The bank expects more 25 basis point shifts in 2025, taking the terminal rate to a range of 3% to 3.25%.
Deutsche Bank
Economists led by Matthew Luzzetti maintained their view the Fed will cut in quarter-point increments through the March 2025 meeting before shifting to a quarterly pace — ultimately leaving fed funds between 3.25% and 3.5% by the end of next year. The Fed’s signals Wednesday, they wrote, “were that this action was a ‘recalibration’ of policy and not the start of a sequence of larger reductions.”
Goldman Sachs
The Fed will opt for a “longer string” of consecutive quarter-point cuts from November through next June, taking the terminal rate to a range of 3.25% to 3.5%, economists including Jan Hatzius wrote in a note. The bank previously expected consecutive cuts at the last two meetings of 2024 and then quarterly moves in 2024. Whether the Fed cuts by 50 basis points again in November is a “close call” and will be determined by the next two employment reports.
JPMorgan
Michael Feroli, the bank’s chief US economist, correctly predicted this week’s half-point cut and is sticking with his view for another one in November. However, he said such a move would be contingent on further softening in the labor market.
Morgan Stanley
Officials will likely opt for a “string” of quarter-point cuts through the middle of 2025, with two this year and four in the first half of next, according to a team including economist Seth Carpenter and strategist Matthew Hornbach.
TD Securities
The Fed’s bar for additional half-point cuts is going to be higher from here, TD strategists including Oscar Munoz and Gennadiy Goldberg wrote on Thursday. “Looking ahead, the Fed’s forward guidance didn’t seem to be as dovish as today’s rate decision would suggest,” they noted. TD continues to expect two 25 basis point cuts over this year, followed by quarter-point reductions at each meeting in 2025.
Wells Fargo
“The 2024 easing cycle starts with historic levels of market uncertainty,” wrote Wells Fargo strategists including Michael Schumacher and Angelo Manolatos. The bank expects that the Fed could ultimately cut by as many as 350 basis points in a hard-landing scenario — or 150 basis points in a soft-landing outcome — in this first year of its cutting cycle. Either way, the bank said that “the Fed has a lot of room to ease.”
--With assistance from Edward Bolingbroke.
(Updates to include commentary from TD, Barclays, Deutsche Bank.)
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