Wall Street Braces for Aggressive Fed Rate Cuts Amid Soft Jobs Data

JPMorgan expects the Federal Reserve to cut interest rates by 50 basis points in September and November.

Economists at Citigroup also foresee a 50 basis-point rate cut at both the September and November meetings, with an additional 25 basis-point cut in December. This revised prediction follows the outlook change after July's employment data release. Veronica Clark and Andrew Hollenhorst now predict a 25 basis-point cut at each meeting until mid-2025, bringing the federal funds rate target range to 3%-3.25%.

A recent report indicating only a 114,000 increase in non-farm payrolls for July has led to heightened expectations for aggressive monetary easing among major Wall Street banks. In response to rising unemployment rates, economists from JPMorgan and Citigroup, among others, have adjusted their rate path forecasts, suggesting earlier and steeper rate cuts.

JPMorgan economist Michael Feroli has gone a step further. Besides predicting the 50 basis-point cuts in September and November, followed by 25 basis-point cuts at subsequent meetings, Feroli sees strong reasons for immediate action before the September 18 FOMC meeting. He does caution, however, that Fed Chair Jerome Powell may prefer not to add to the "already noisy summer.”

Economists led by Jan Hatzius at Goldman Sachs now expect a 25 basis-point rate cut in November, as opposed to their prior prediction of cuts in September and December. They indicate that while July's data may overstate labor market weakness, a similarly weak August report could make a 50 basis-point cut in September "feasible.”

Meanwhile, economists led by Michael Gapen at Bank of America now anticipate the first rate cut to occur in September, previously forecasting a December start.

Interest rate swaps reflect traders’ belief that there is over a 70% probability of a 50 basis-point cut in September, with an estimated total cut of about 115 basis points for the year.