Wall Street Banks Make Predictions on Fed's Rate Cut Path

Several major Wall Street investment banks, including Goldman Sachs, Citigroup, and Morgan Stanley, have released their forecasts for the Federal Reserve's future interest rate cuts.

Bank of America stands out as the sole major investment bank to increase its rate cut projections for the remainder of 2024. The bank anticipates a 75 basis point rate reduction in the fourth quarter, followed by an additional 125 basis point cut in 2025, ultimately bringing the federal funds rate target range down to 2.75%-3.00% from its current level of 4.75%-5.00%. Bank of America economists expressed doubt about the Fed’s willingness to deliver a hawkish surprise following these substantial rate reductions.

Goldman Sachs maintains its prediction of a 25 basis point rate cut at both the November and December meetings this year. However, the firm now expects consecutive 25 basis point cuts from November 2024 to June 2025, culminating in a terminal rate of 3.25%-3.50% by mid-2025. Earlier projections anticipated quarterly rate cuts in 2025. Goldman Sachs economists also acknowledge that a 50 basis point rate cut in November remains a “knife-edge” scenario, contingent on the next two employment reports.

Citigroup upholds its projected 125 basis point rate cut for this year but now expects a 25 basis point cut in December, as opposed to the previously anticipated 50 basis point cut. Additionally, the firm predicts further 25 basis point cuts in 2025, bringing the terminal rate to a range of 3%-3.25%.

Other investment banks like Macquarie and Deutsche Bank maintain their outlook for two additional 25 basis point rate cuts this year.

Morgan Stanley economists, Seth Carpenter and Matthew Hornbach, anticipate a series of conventional 25 basis point rate reductions leading up to mid-2025, including two cuts this year and four cuts in the first half of next year.

Wells Fargo strategists, Michael Schumacher and Angelo Manolatos, highlighted the historical levels of market uncertainty at the onset of the 2024 easing cycle. Wells Fargo anticipates a potential for a 350 basis point rate cut in a hard landing scenario and a 150 basis point cut in a soft landing scenario, all within the first year of the easing cycle. Regardless of the scenario, Wells Fargo maintains that the Fed “has plenty of room to ease.”

Market pricing suggests traders are expecting roughly 70 basis points of rate cuts by year-end and almost 200 basis points of cuts by September 2024. The market’s expectation for Fed rate cuts is more aggressive than the Fed's own dot plot projections.