Fed sees 225 bps rate cut in ‘next nine months or so’

Investing.com — The Federal Reserve is set to launch a more measured interest rate cut at its next monthly policy meeting, followed by two deeper cuts later in 2024, according to analysts at Wells Fargo.

In a note to clients on Thursday, analysts said they now expect the Fed to cut borrowing costs — currently at a more than two-decade high of 5.25 percent to 5.5 percent — by 25 basis points at the central bank level. September 17-18 meeting.

They then estimated that policymakers would cut rates by another 50 basis points at each of their last two meetings this year, in November and December.

If the Fed takes this approach, it would leave the benchmark federal funds rate in a range of 4% to 4.25% at the end of the year. Wells Fargo analysts said this level would still be above the so-called “neutral rate” that separates tight and accommodative monetary policy.

Meanwhile, “over the next nine months or so,” analysts believe the Fed will announce cumulative cuts of 225 basis points, saying that would be enough to keep “the economic expansion intact.”

The comments come after data this week showed that “core” US consumer prices — which exclude volatile items such as food and fuel — accelerated slightly in August. The number moderated market expectations that the Fed would cut rates by 50 basis points in September.

Last week, a crucial nonfarm payrolls report also showed the U.S. economy added fewer jobs than expected in August but rose from a sharply revised reading in July. The release also found that the unemployment rate met estimates of 4.2 percent, compared to July’s mark of 4.3 percent.

According to separate data, US private employers hired the fewest number of workers since 2021 in August, while job openings fell to a 3½-year low in July. But concerns about a deteriorating US labor market were somewhat assuaged by other figures showing a drop in jobless claims and an expansion in service sector activity.