The threshold for the Federal Reserve to further significantly cut interest rates is low? Morgan Stanley: Another 50 basis points cut in November!

JPMorgan Chase's chief US economist Michael Feroli is one of the few analysts on Wall Street who accurately predicted the Fed's 50 basis point rate cut this week, and he expects this scenario to happen again.

Almost all analysts expect the Fed's next rate cut to be 25 basis points, with some pointing out that unexpected core consumer inflation rising last month may prevent the Fed from taking a substantial rate cut. Others on Wall Street warn that a larger rate cut may signal worse economic conditions and require additional assistance.

However, Feroli stated in a report last Thursday that the Fed should lower rates in July, and a 50 basis point cut this month could help policymakers catch up.

He also noted that Fed Chairman Powell, by emphasizing the strength of the US economy and the desire to maintain a strong economy, has cloaked dovish rate decisions in hawkish attire.

Feroli wrote, "In other circumstances, a larger move might signal greater concern about growth, but Powell has repeatedly emphasized that with inflation slowing, the Fed can act to sustain a strong labor market, which is essentially a celebratory rate cut. Additionally, if policy rates are set appropriately, it should over time bring the economy back to a favorable position."

Fed Governor Wall expressed similar views in an interview last Friday, stating that he voted to support a 50 basis point rate cut because inflation cooling exceeded expectations.

Fed officials will meet again on November 6th and 7th, and Feroli expects a 50 basis point rate cut at that time, but this depends on whether the next two employment reports show more signs of weakness. He added that if job growth is stronger, this will lead the Fed to cut rates by 25 basis points at the November and December meetings.

According to the CME Group's FedWatch Tool, investors are almost evenly split between a 25 basis point and 50 basis point rate cut at the November meeting. The Fed officials' so-called "dot plot" forecasts indicate that they expect two 25 basis point rate cuts before the end of the year.

As for Powell himself, he warned that this month's large rate cut does not mean that the pace of rate cuts in the subsequent easing cycle will be as rapid.

Feroli stated, "Ultimately, we believe the most important and least surprising point Powell made is that future decisions will depend on the data." Feroli observed, "If the labor market continues to weaken, we may see more substantial rate cuts in the future. If job growth and the unemployment rate stabilize, then the path back to neutrality will become clearer."

Meanwhile, economists at Bank of America also see the possibility of a 50 basis point rate cut in November. Following this, they expect a series of 25 basis point rate cuts until the federal funds rate reaches 2.75%-3% at some point in 2025, below the current 4.75%-5% Citigroup economists have been pessimistic about the economy for months, warning that a recession is likely inevitable. They also anticipate a 50 basis point rate cut at the next Federal Reserve meeting, with a leaning towards further significant rate cuts in the future.

In a report, Citigroup wrote: "Powell finds it difficult to explain why the labor market will not continue to deteriorate but stabilize at the current level when interest rates are expected to remain restrictive for at least the next year by the Fed. Given that he described last week's 50 basis point rate cut as a 'commitment' to prevent falling behind the curve, we believe the threshold for further significant rate cuts is low."