As the U.S. central bank initiated a series of expected reductions, BofA Global Research has increased its forecast for the Federal Reserve's anticipated interest rate cuts to 75 basis points for the remainder of the year. This move comes after the Fed announced a half-percentage-point reduction, signaling its commitment to sustaining a low unemployment rate amidst easing inflation.
The Wall Street brokerage predicts a cumulative 75 bps decrease in the fourth quarter, deviating from its previous forecast of two 25-bp cuts in the November and December meetings. Additionally, BofA Global Research anticipates further cuts of 125 bps in 2025, aiming to bring the terminal rate to 2.75%-3.00% from the current Fed fund's target rate of 4.75%-5.00%.
Goldman Sachs, on the other hand, has maintained its forecast of two 25-bp cuts in the late 2024 meetings. The firm now foresees consecutive 25 bps cuts from November 2024 through June 2025, with a target rate of 3.25%-3.50% by mid-2025.
With the recent 50-bp cut and the accelerated pace of cuts projected for 2025, Goldman Sachs economists believe a longer series of consecutive reductions is the most probable path forward.
Overall, Fed policymakers have outlined a plan for the benchmark interest rate to decrease by half a percentage point by the end of 2024, a full percentage point in the following year, and an additional half a percentage point in 2026.
It is essential to note that the outlook for the future is subject to uncertainty, despite these projections. Stay tuned for further updates as the situation evolves.
Analysis:
The recent increase in forecasted Fed interest rate cuts by BofA Global Research and Goldman Sachs indicates a shift in monetary policy that could impact various sectors of the economy. Lower interest rates typically lead to increased borrowing and spending, stimulating economic growth. However, they can also result in lower returns on savings and investments. As an investor or consumer, it is crucial to monitor these developments closely and adjust your financial strategy accordingly. Consult with a financial advisor to understand how these changes may affect your specific situation and make informed decisions to protect and grow your wealth.