(Reuters) -BofA Global Research was the only major brokerage to raise its forecast for the Federal Reserve’s anticipated interest-rate cuts for the rest of 2024, a day after the U.S. central bank delivered an outsized cut.
The Wall Street brokerage said it expects a 75-basis point reduction in the fourth quarter, compared with its earlier forecast for two 25-bp cuts in the Fed’s November and December meetings.
Fed policymakers themselves have projected the benchmark interest rate will fall by another half a percentage point by 2024-end.
The central bank announced a larger-than-usual 50 bps reduction on Wednesday that Chair Jerome Powell said was meant to show policymakers’ commitment to sustaining a low unemployment rate now that inflation has eased.
Following the bigger rate cut, “we are skeptical that the Fed will want to deliver a hawkish surprise”, BofA economists said.
The brokerage expects another 125 bps of cuts in 2025 to bring the terminal rate to 2.75%-3.00%, from the current federal funds target rate of 4.75%-5.00%.
That compares with Fed policymakers projecting a full percentage point cut for next year, and half a percentage point in 2026, while cautioning the outlook that far into the future is necessarily uncertain.
Goldman Sachs, meanwhile, 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%-3.50% by mid-2025.
It earlier expected quarterly pacing of cuts in 2025.
Citigroup maintained its expected size of cuts this year at 125 bps, but now expects a 25 bps reduction in December against its earlier forecast of a 50 bps cut.
Other brokerages like Macquarie and Deutsche Bank have retained their calls of two 25 bps rate cuts this year.
