After the interest rate cut cycle begins, what will the Federal Reserve do next? Wall Street is discussing it

According to the VESYNC Financial APP, after the Federal Reserve initiated a rate cut cycle this week, the largest banks on Wall Street have divergent views on the speed and magnitude of the Fed's future rate cuts. Until the outlook becomes clear, the financial markets will remain tense.

On Wednesday, the Federal Reserve unexpectedly cut the benchmark interest rate by 50 basis points. Several hours later, multiple economists adjusted their forecasts, with Goldman Sachs expecting the Fed to cut rates by 25 basis points at each meeting from November to June next year. J.P. Morgan, which correctly predicted the rate cut this week, still believes there will be another 50 basis point cut in November, depending on the labor market conditions.

In the market, traders expect a total rate cut of about 70 basis points by the end of this year and nearly 200 basis points by September next year. This is more aggressive than the Fed officials' prediction of another 50 basis point cut by the end of the year in the latest dot plot.

Here are some views from economists at major Wall Street banks:

Bank of America

Economists and strategists including Aditya Bhave, Mark Cabana, and Alex Cohen wrote that the Fed "will be forced to cut rates further," expecting a total cut of 75 basis points in the fourth quarter and another 125 basis points next year.

Barclays

U.S. economists led by Marc Giannoni wrote in a report that the Fed will continue to cut rates by 25 basis points in November and December, followed by three more cuts of 25 basis points in 2025. Considering the Fed's 50 basis point cut on Wednesday (which Barclays did not anticipate), they now believe the year-end target range will be lowered to 3.50% to 3.75%.

Citigroup

Citigroup economists Veronica Clark and Andrew Hollenhorst maintained their forecast of another 75 basis point cut this year, with a 50 basis point cut in November and 25 basis point cut in December. They wrote in a report, "The risks of a faster pace of rate cuts remain balanced." The bank expects multiple 25 basis point cuts in 2025, with the final rate reaching a range of 3% to 3.25%.

Deutsche Bank

Economists led by Matthew Luzzetti at Deutsche Bank continue to believe that the Fed will gradually cut rates by 25 basis points before the March 2025 meeting, then switch to quarterly cuts, ultimately keeping the federal funds rate between 3.25% and 3.5% by the end of next year. They wrote that the signal from the Fed on Wednesday was, "This action is a 'policy readjustment,' not the start of a series of larger rate cuts." Goldman Sachs

Economists, including Jan Hatzius, wrote in a report that the Federal Reserve will choose to cut interest rates by 25 basis points from November to June next year, bringing the final rate to 3.25% to 3.5%. The bank previously expected consecutive rate cuts at the last two meetings in 2024, followed by quarterly cuts in 2024. Whether the Fed will cut rates by another 50 basis points in November is a "pending" issue, to be decided by the next two employment reports.

JP Morgan

The bank's chief U.S. economist Michael Feroli correctly predicted a 50 basis point rate cut this week and maintains his view of another 50 basis point cut in November. However, he stated that this will depend on further softening in the labor market.

Morgan Stanley

A team including economist Seth Carpenter and strategist Matthew Hornbach stated that officials may choose to "consistently" cut rates by 25 basis points before mid-2025, including two cuts this year and four cuts in the first half of next year.

Morgan Stanley

Strategists at Morgan Stanley, including Oscar Munoz and Gennadiy Goldberg, wrote on Thursday that the threshold for the Fed to cut rates by another 50 basis points will be higher from now on. They noted, "Looking ahead, the Fed's forward guidance does not seem as gentle as implied by this week's rate decision." Morgan Stanley expects two 25 basis point cuts this year, followed by 25 basis point cuts at each meeting in 2025.

Wells Fargo

Strategists at Wells Fargo, including Michael Schumacher and Angelo Manolatos, wrote, "The 2024 easing cycle begins with market uncertainty at historical levels." The bank expects that in the event of a hard landing, the Fed may ultimately cut rates by as much as 350 basis points in the first year of its rate-cutting cycle, or by 150 basis points in the case of a soft landing. In any case, "the Fed has a lot of room to ease."