Bank of America expects another 75 basis points of rate cuts

Federal Reserve Cuts Rates for the First Time in Four Years. On September 18, Bank of America Global Research revealed an upward adjustment in its forecast, expecting the Federal Reserve to implement a total of 75 basis points in rate cuts by year-end.

This projection includes an additional anticipated cut of 125 basis points in 2025. In a similar vein, Goldman Sachs foresees multiple reductions of 25 basis points extending into mid-2025.

In a noteworthy announcement, the Fed declared its first rate reduction in four years, adjusting the federal funds rate from a target range of 5.25%-5.5% down to 4.75%-5%. This 50 basis point cut marks a significant departure from standard practices.

Fed Chair Jerome Powell emphasized that this decision aims to mitigate the impact of prior rate hikes on the labor market while sustaining low unemployment rates, especially as inflation appears to be easing.

In its latest assessment, Bank of America adjusted its expectations for the fourth quarter, predicting a cumulative 75 basis point cut, shifting from earlier forecasts of two 25 basis point reductions during the November and December meetings.

Additionally, Bank of America forecasts that the Fed may lower rates by another 125 basis points in 2025, bringing the final rate down to a range of 2.75%-3.00%.

According to Bank of America's economists, these larger cuts may necessitate further reductions down the line.

Goldman Sachs upheld its forecast of two 25-basis point cuts during the upcoming November and December meetings but revised its predictions for 2024. The firm now expects a series of consecutive 25 basis point cuts from November 2024 through June 2025, projecting a final rate of around 3.25%-3.50% by mid-2025, deviating from earlier quarterly reduction expectations.

Goldman Sachs economists noted, “The decision to cut rates by 50 basis points today underscores a heightened urgency, with many policymakers expecting a faster pace of cuts by 2025, making an extended series of reductions the most likely scenario.”

Looking at the perspectives of Fed officials, the influential “dot plot” indicates that 19 policymakers foresee a benchmark rate reduction of 50 basis points by the end of 2024, with a further 100 basis points cut by the end of 2025 and an additional 50 basis points in 2026. They cautioned, however, that the future economic landscape remains inherently unpredictable.