The Federal Reserve cuts interest rates for the first time, "opening big", will there be more aggressive moves next? Wall Street is in an uproar

The Federal Reserve opened the globally anticipated rate cut cycle with a 50 basis point cut overnight, in line with the market's general expectations. However, for many major banks like UBS and HSBC who have been advocating for a 25 basis point cut, it is undoubtedly a "slap in the face".

Now that the "boot" has landed, Wall Street is shifting its focus to the Fed's next moves, speculating on the possibility of further aggressive actions, with different opinions among investment banks.

The dot plot released overnight indicates that there is still at least 50 basis points of room for rate cuts this year. Combined with Powell's "hawkish" stance at the monetary policy press conference, UBS currently leans towards the view that the Fed will slow down the pace of rate cuts, with 25 basis point cuts at each of the remaining two interest rate meetings this year.

Compared to the cautious UBS, Morgan Stanley and Bank of America appear more optimistic and aggressive. Morgan Stanley predicts another 50 basis point cut in November, while Bank of America forecasts a total of 75 basis points of cuts by the end of the year.

Given the dovish dot plot, Citigroup finds it difficult to determine whether there will be significant rate cuts in the future. Goldman Sachs and HSBC, on the other hand, predict that the Fed will cut rates by 25 basis points at each of the next six interest rate meetings, reaching the end point by mid-next year.

Morgan Stanley: Another 50 basis point cut depends on the labor market, Bank of America: Expect another 75 basis points cut this year!

Michael Feroli, Chief U.S. Economist at Morgan Stanley, continues to believe that the Fed will cut rates by another 50 basis points in November, depending on the weakness of the U.S. labor market.

In a recent report, Feroli wrote:

We still expect that the pace of normalization of rates will be faster than the median shown in the dot plot. We expect the next meeting in early November to cut rates by 50 basis points, but this will depend on whether the two (non-farm) employment reports released during that period soften further.

If labor data remains soft, this will provide a basis for the "golden-haired girl" scenario of 25 basis point cuts at each remaining meeting this year.

It is worth noting that Feroli correctly predicted the magnitude of the Fed's rate cut this time. Since August 2, he has been insisting that the Fed will cut rates by 50 basis points in September, even after a colleague at Citigroup abandoned the same bet, he still stuck to his prediction.

While Morgan Stanley celebrates its victory, other Wall Street banks are adjusting their forecasts for the future rate path.

Bank of America has raised its forecast for the remaining rate cuts by the Fed this year to 75 basis points, up from the previous expectation of 50 basis points.

In a report released by the bank's global research department on Wednesday, they wrote:

We believe the Fed will be forced to cut rates further. Bank of America also stated that after the significant rate cut, "we doubt whether the Fed would be willing to bring a hawkish surprise."

Goldman Sachs, HSBC: Interest rates to reach the end by mid-next year

Goldman Sachs chief economist Jan Hatzius predicts that from November this year to June next year, the Fed will cut rates by 25 basis points consecutively, and by mid-2025, the rate will reach the end point of 3.25%-3.50%.

Today's 50 basis point rate cut indicates a more urgent situation, and most FOMC members expect the pace of rate cuts in 2025 to accelerate. Therefore, we believe that a longer period of consecutive rate cuts is the most likely path.

However, it is still "difficult to say" whether there will be a 25 basis point rate cut in November or a continuation of the 50 basis point cut, Hatzius pointed out that the decisive factor will be the next two non-farm payroll reports. According to the CME FedWatch tool, the probability of a 50 basis point rate cut in November is only 31%.

HSBC currently also predicts that the Fed will cut rates by 25 basis points at each of the next six policy meetings, with the target rate reaching 3.25%-3.50% by June next year. However, if the unemployment rate stabilizes at some point in the future, this may provide the FOMC with a reason to slow down or even halt the rate cuts.

Citi: "It's hard to say whether there will be a significant rate cut next"

As of now, traders are betting that the Fed will cut rates by another 70 basis points this year.

Citi trader Akshay Singal accurately predicted the 50 basis point rate cut weeks ago. However, after seeing the rare dissenting vote and the less dovish latest dot plot from the Fed, Singal finds it difficult to judge the pace of future rate cuts.

Currently, just over half of the policymakers expect a total of at least 50 basis points in rate cuts this year. Regarding this, Singal believes that although Powell holds significant power in driving policy and his own attitude is clearly more dovish than other members, the uncertainty remains about the extent of future rate cuts due to internal disagreements:

Powell wields significant power, and the key in the coming months is to understand how dovish he really is.

Data released on Thursday showed that the number of initial jobless claims in the U.S. for the week ending September 14 was below expectations, once again highlighting the resilience of the labor market, pushing the yield on the 10-year U.S. Treasury bond up by 4 basis points to 3.76%.

"In the coming weeks, the US Treasury yield curve may experience further sideways fluctuations," strategists including Jay Barry wrote, "The money market is unlikely to anticipate whether the rate cut will accelerate or the neutral rate will decrease until we see the September employment report."