① Among the investment banks that have updated their forecasts in recent weeks, without exception, it is widely expected that the Federal Reserve will cut interest rates by 25 basis points next month In its outlook for the end of the year, only Citigroup believes that the Federal Reserve may cut interest rates by another 50 basis points at its December meeting, while other investment banks expect the rate cut at the December meeting to remain at 25 basis points.
Goldman Sachs Group announced on Wednesday that it expects the Federal Reserve to cut interest rates by 25 basis points consecutively at its next six interest rate meetings from November 2024 to June 2025, thereby lowering the target range for the federal funds rate to 3.25% -3.5%.
Last month, the Federal Reserve launched this easing cycle with a significant 50 basis point rate cut. However, with data released earlier this month showing a significant rebound in new non farm payroll data for September in the United States, and September CPI data exceeding expectations across the board, industry insiders' bets on a more aggressive interest rate cut by the Federal Reserve before the end of the year have noticeably cooled.
According to the Chicago Mercantile Exchange's Federal Reserve Watch tool, market traders currently expect a probability of 92.1% for a 25 basis point rate cut at the Fed's next meeting, while the likelihood of remaining inactive is only 7.9%.
And this is also reflected in the predictions of many investment banks, including Goldman Sachs.
In recent reports, Goldman Sachs, Barclays, Macquarie, and Deutsche Bank have all reiterated their benchmark expectations for the Federal Reserve to cut interest rates by 25 basis points in November and December, respectively.
In fact, as shown in the following chart, among investment banks that have updated their forecasts in recent weeks, without exception, they generally expect the Federal Reserve to cut interest rates by 25 basis points next month:
In its outlook for the end of the year, only Citigroup believes that the Federal Reserve may cut interest rates by another 50 basis points at its December meeting, while other investment banks expect the rate cut at the December meeting to remain at 25 basis points.
At present, the main disagreement among Wall Street investment banks is actually more focused on predicting the magnitude of interest rate cuts next year. For example, Barclays, which has a relatively hawkish stance, currently expects the Federal Reserve to only cut interest rates three times next year, accumulating 75 basis points. Morgan Stanley, which has a relatively dovish stance, expects the Federal Reserve to cut interest rates by a cumulative 150 basis points from early next year to September next year.
The following chart is a summary of investment bank forecasts compiled by Nick Timiraos of the New Federal Reserve News Agency after last week's CPI data - some investment bank forecasts may be updated slowly, but they are basically consistent with the above chart.
Of course, what these investment banks are currently intentionally or unintentionally ignoring is the possibility of the Federal Reserve skipping a meeting to cut interest rates within the year. Based on recent statements from Federal Reserve officials, this risk cannot be completely ignored.
For example, San Francisco Fed President Daly stated on Tuesday that she is open to not cutting interest rates in one of the remaining two Fed policy meetings this year. Previously, Bostic, the Chairman of the Atlanta Fed, also pointed out that he is open to not cutting interest rates in November or only lowering them by 25 basis points during the remaining two meetings of the Fed this year.
At present, there are not many key data that are expected to affect the direction of interest rates before the US presidential election in early November and the next Federal Reserve interest rate meeting, especially in the case where the non farm payroll data for October on November 1st may be distorted due to unexpected factors such as hurricanes and strikes. Some industry insiders are also paying attention to tonight's release of US retail sales data, an economic indicator known as the "terror data of the United States" that is expected to provide information on consumer health.
If the data matches expectations, it is likely to support the view that consumption remains resilient and strong, implying that the Federal Reserve does not need to cut interest rates too quickly, "said JoAnne Bianco, Partner and Portfolio Manager at BondBloxx
In terms of the US bond market, the yields of US bonds of all maturities generally fell on Wednesday, but the overall volatility was not significant. Among them, the yield of 2-year US Treasury bonds fell 0.4 basis points to 3.952%, the yield of 5-year US Treasury bonds fell 1.1 basis points to 3.85%, the yield of 10-year US Treasury bonds fell 1.9 basis points to 4.019%, and the yield of 30-year US Treasury bonds fell 2.3 basis points to 4.3%.