The disappointing U.S. employment report for June has shifted Wall Street sentiment from a soft landing expectation to near panic about an impending recession. This has led major firms to revise their forecasts for Federal Reserve actions, predicting a more aggressive approach to interest rate cuts this year.
Market expectations now suggest the Fed will reduce rates by a quarter point at each of the remaining three policy meetings in September, November, and December, with a minimum of two cuts on the horizon. The baseline scenario foresees a total reduction of 50-75 basis points across these upcoming gatherings. Moreover, there is a growing belief among some analysts that larger rate cuts could be in the cards.
There are 10 economists and analysts that reviewed their forecasts in August with the Bank of America and Jefferies expecting just two cuts for a total of 50 bps this year. Meanwhile, Carclays, Goldman Sachs, LH Meyer, Nomura, TD Securities are looking at 75 bps rate cuts. What is important is the remaining three firms, which are Citigroup, JP Morgan and Wells Fargo, that expect the Fed to cut as much as 125 bps this year, starting with a half percentage point cut at the upcoming meeting in September.
In July, employers in the U.S. only added 114,000 jobs, as per the U.S. Labor Department’s report released on Friday. Additionally, the unemployment rate climbed to 4.3% from June’s 4.1%, signaling an unexpected deterioration in the labor market that had previously shown resilience during the Federal Reserve’s series of rate hikes in 2022 and 2023.
