Bank of America Forecasts Aggressive Fed Rate Cuts, Diverges from Goldman Sachs and Citigroup Predictions

On September 19, COINOTAG reported that major financial institutions, including Goldman Sachs, Citigroup, and Morgan Stanley, made projections about the Federal Reserve’s anticipated rate cuts. Significantly, Bank of America diverged from its peers, increasing its forecast for Federal Reserve rate reductions through the end of 2024. Bank of America projects a 75 basis points cut in the fourth quarter and an additional 125 basis points cut in 2025, lowering the federal funds target rate from 4.75%-5.00% to approximately 2.75%-3.00%. Economists at the bank expressed doubt over the Fed’s likelihood to execute a hawkish surprise following these substantial cuts.

Meanwhile, Goldman Sachs maintains a forecast of 25 basis points rate cuts during the Fed’s November and December meetings this year. Additionally, it now anticipates similar cuts from November 2024 through June 2025, potentially reducing the terminal rate to 3.25%-3.50% by mid-2025. Citigroup has revised its forecast downwards, predicting a 25 basis points cut in December, followed by additional 25 basis points reductions in 2025, potentially bringing the terminal rate to a range of 3%-3.25%. Other key brokers like Macquarie and Deutsche Bank continue to expect the Fed to enact two more 25 basis points cuts this year.

Members of the Morgan Stanley team, including economist Seth Carpenter and strategist Matthew Hornbach, suggest that the Fed could implement conventional 25 basis points cuts by mid-2025, with two cuts expected this year and four in the first half of the next year. Reflecting on the broader market sentiment, Wells Fargo strategists Michael Schumacher and Angelo Manolatos noted unprecedented levels of market uncertainty as the 2024 easing cycle commences. According to them, the Fed has significant latitude for easing, with potential rate cuts ranging from 150 to 350 basis points depending on economic conditions.

Moreover, market trends indicate that traders anticipate rate reductions totaling approximately 70 basis points by the end of this year and close to 200 basis points by September next year. These expectations are viewed as more assertive compared to the Federal Reserve’s dot plot projections.