Wall Street is in turmoil, where will the Federal Reserve go after a bold start?

The brokerage firm expects that the Federal Reserve will cut interest rates by another 125 basis points in 2025, bringing the federal funds target rate from the current range of 4.75%-5.00% down to a terminal level of 2.75%-3.00%.

In contrast, Federal Reserve policymakers are expected to cut rates by 100 basis points next year and by 50 basis points in 2026, while also warning that the future outlook is inevitably uncertain.

Meanwhile, Goldman Sachs has maintained its forecast for the Federal Reserve to cut rates by 25 basis points at the November and December meetings this year, but now expects the Fed to cut rates by 25 basis points continuously from November 2024 to June 2025, bringing the terminal rate to 3.25%-3.50% by mid-2025. Its earlier forecast had the Fed cutting rates quarterly in 2025.

The bank's economists also added that whether the Federal Reserve will cut rates by 50 basis points again in November is a "knife-edge" issue that will be determined by the next two employment reports.

Citigroup maintains its expectation for a 125 basis point rate cut by the Federal Reserve this year, but now expects a 25 basis point cut in December, down from the previous forecast of 50 basis points. In addition, the bank expects more 25 basis point cuts in 2025, pushing the terminal rate to the range of 3%-3.25%.

Other brokerages such as Macquarie and Deutsche Bank have retained their expectations for two more 25 basis point rate cuts by the Federal Reserve this year.

The Morgan Stanley team, including economists Seth Carpenter and strategist Matthew Hornbach, suggests that officials may choose to implement a series of regular rate cuts (25 basis points) before mid-2025, with two rate cuts this year and four in the first half of next year.

UBS strategists led by Michael Schumacher and Angelo Manolatos wrote, "As the easing cycle begins in 2024, market uncertainty is at historic levels."

The bank expects that in the first year of the rate cut cycle, the Federal Reserve may cut rates by as much as 350 basis points in a hard landing scenario and 150 basis points in a soft landing scenario. UBS stated that regardless of the approach, "the Federal Reserve has significant room for easing."

According to market pricing, traders expect the Federal Reserve to cut rates by around 70 basis points by the end of this year and by nearly 200 basis points by September next year.

Market expectations for Federal Reserve rate cuts are more aggressive than a dot plot