BofA now expects the Fed to go for a 75 basis point cut in Q4 after a top rate cut.

(Reuters) – BofA Global Research raised its forecast for anticipated Federal Reserve interest rate cuts for the rest of this year to 75 basis points after the U.S. central bank launched a series of widely expected cuts on Wednesday.

The Fed announced a half-percentage-point cut larger than usual, which Chairman Jerome Powell said was intended to show policymakers’ commitment to keeping the unemployment rate low now that inflation has eased.

The Wall Street brokerage said in a note on Wednesday that it now expects the Fed to cut interest rates by 75 bps in the fourth quarter, compared with its previous forecast of two 25 bp cuts at the Fed’s November and December meetings.

BofA Global Research expects another 125 bps of cuts in 2025 to bring the terminal rate to 2.75%-3.00%, from the current Fed funds rate target of 4.75%-5.00%.

“We think the Fed will be pushed into deeper cuts,” BofA economists said.

In the wake of more interest rate cuts, “we are skeptical that the Fed will want to deliver a driver surprise,” they said.

Separately, Goldman Sachs kept its forecast of two 25 basis point cuts at meetings in November and December this year, but said it now expects consecutive cuts of 25 basis points from November 2024 to June 2025, taking the terminal rate to 3.25%-3.50% by mid-year. 2025.

It had earlier expected a quarterly pace of cuts in 2025.

“The greater urgency suggested by today’s 50 basis point cut and the acceleration in the rate of cuts that most participants have projected for 2025 make a longer run of consecutive cuts the most likely path in our view” , Goldman Sachs economists said in a note on Wednesday.

Fed policymakers have forecast that the benchmark interest rate will fall by another half a percentage point by the end of 2024, by a full percentage point next year and by half a percentage point in 2026, while warning that the outlook going forward is necessarily uncertain.