Fed Rate Cuts Expected to Ignite Broader Market Opportunities in 2025

Wells Fargo analysts are optimistic that the recent interest rate reduction by the Federal Reserve marks the start of a series of cuts, potentially opening up broader market opportunities in 2025.

In a recent communication to clients, the bank highlighted that the emphasis should be on the long-term path of interest rates rather than the immediate size of the cuts. The Federal Reserve’s recent 50 basis point reduction surprised many investors, although the futures market had assigned a 58% chance to such a move.

The bank noted, “The key takeaway from the past two months is not the magnitude of the first cut but rather that the September policy meeting signifies the beginning of a likely series of Fed rate reductions extending well into next year.”

Wells Fargo anticipates that these rate cuts will play a crucial role in supporting economic growth and the labor market. This perspective was further reinforced by Chicago Fed President Austan Goolsbee, who indicated that additional rate cuts will likely be necessary to bolster the economy.

Wells Fargo projects that central bankers will implement 25 basis point cuts at the upcoming Federal Open Market Committee meetings scheduled for November and December, leading to a total reduction of 100 basis points in 2024. However, the timing of the cuts in 2025 remains uncertain.

While the U.S. economy is expected to decelerate toward the latter part of 2024, Wells Fargo does not anticipate a recession. Instead, they foresee a moderate slowdown before rate cuts begin to have a positive effect on growth. By early to mid-2025, the bank expects the domestic economy to respond positively to the easing cycle, which should also enhance earnings in major indices, as approximately 35% of their revenue is sourced from international markets.

In conclusion, Wells Fargo asserts, “Last week’s Fed rate cut is merely the beginning of what is likely to be a series of reductions that should help create broader opportunities next year.”