BofA Anticipates 75 Basis Points Rate Cuts by Fed in Q4, According to Reuters

BofA Global Research has adjusted its forecast for the Federal Reserve’s expected interest rate cuts for the remainder of this year, now anticipating a total of 75 basis points. This change follows the Fed’s recent announcement of a larger-than-usual reduction of half a percentage point, aimed at demonstrating the central bank’s commitment to maintaining low unemployment in the wake of easing inflation.

The Wall Street firm indicated in a recent note that it expects the Fed to implement a cumulative 75 basis point cut in the fourth quarter, revising its previous outlook of two 25 basis point reductions during the Fed’s meetings in November and December.

Looking ahead, BofA Global Research projects an additional 125 basis points of cuts in 2025, which would lower the terminal rate to between 2.75% and 3.00%, down from the current target range of 4.75% to 5.00%. The economists at BofA believe the Fed may be compelled to make deeper rate cuts.

In light of the recent larger cut, they expressed doubt that the Fed would aim to surprise the market with a hawkish stance.

Meanwhile, Goldman Sachs has maintained its prediction of two 25 basis point cuts in November and December of this year. However, it now anticipates consecutive 25 basis point reductions from November 2024 through June 2025, which would lower the terminal rate to between 3.25% and 3.50% by mid-2025, shifting from its earlier expectation of quarterly cuts in 2025.

Goldman Sachs economists conveyed that the urgency indicated by the recent 50 basis point cut, along with an accelerated pace of cuts anticipated for 2025, makes a series of consecutive reductions the most likely scenario.

Fed policymakers have projected a drop in the benchmark interest rate by another half a percentage point by the end of 2024, a full percentage point the following year, and an additional half a percentage point in 2026, while noting the inherent uncertainty of such long-term forecasts.