BofA Raises Fed Rate Cut Forecast to 75 Basis Points in Q4

BofA Adjusts Federal Reserve Rate Cut Projections

BofA Global Research has recently updated its expectations regarding the Federal Reserve's interest rate cuts for the remainder of the year. The financial institution is now anticipating a significant reduction of 75 basis points, following the U.S. central bank's announcement of a larger-than-expected half-percentage-point cut. This move is designed to reinforce the Fed's intention to maintain low unemployment rates as inflation trends downward.

Impact of Recent Rate Reductions

The recent decision by the Federal Reserve, highlighted by Chair Jerome Powell, signals a shift towards more aggressive monetary easing. With this new strategy, BofA has revised its previous forecast. Initially, they had projected two smaller cuts of 25 basis points each in the upcoming meetings scheduled for November and December. However, their outlook now points to a unified reduction of 75 basis points in the fourth quarter.

Extended Rate Cut Forecast

Looking ahead, BofA Global Research is not stopping at just this quarterly cut. They are forecasting an additional cumulative reduction of 125 basis points that is expected to materialize in 2025. This would adjust the terminal rate down to a target range of 2.75% to 3.00%, representing a significant drop from the current Fed funds target rate settled between 4.75% and 5.00%.

Economic Insights from BofA economists

The economic team at BofA has expressed that deeper rate cuts may be inevitable. They suggest that the central bank is now likely to head into a prolonged cycle of cuts rather than risking a hawkish approach after such a substantial reduction. Their insights emphasize the need for a careful balance to sustain economic stability.

Alternatives on the Horizon from Goldman Sachs

In a separate analysis, Goldman Sachs has maintained its stance on the impending reductions, predicting two cuts of 25 basis points each in the same November and December meetings. Nevertheless, they also foresee a trend of consecutive cuts starting in November 2024, which could extend through June 2025, potentially leading to a terminal rate adjustment to a range of 3.25% to 3.50% by the midpoint of 2025.

Goldman Sachs' Perspectives on Future Cuts

The economic outlook provided by Goldman Sachs emphasizes urgency, particularly after the recent 50-basis-point cut. They comment that the increased speed of projected cuts in 2025 is likely to drive ongoing reductions, making it plausible to expect a series of regular reductions, transforming the economic landscape further.

Federal Reserve Projections and Considerations

According to the latest projections from Fed policymakers, the benchmark interest rate is estimated to decrease by another half-percentage-point by the end of 2024. Additionally, they anticipate a total decline of one full percentage point in 2025, alongside a further half-percentage-point cut in the following year. However, they also caution that forecasts extending this far into the future come with substantial uncertainty, highlighting the challenges in predicting economic conditions accurately.

Conclusion

The role of the Federal Reserve in managing economic stability remains crucial, especially in the wake of shifting inflation rates. As BofA and other financial entities adjust their forecasts, the implications of these anticipated cuts will likely resonate throughout the broader economy, affecting both individual and business financial strategies going forward.

Frequently Asked Questions

What is BofA's updated forecast for Fed rate cuts?

BofA now expects the Federal Reserve to reduce rates by 75 basis points in Q4, higher than previous projections.

What triggered BofA's forecast revision?

The revision follows a significant half-percentage-point rate cut announced by the Federal Reserve.

How does Goldman Sachs view the Fed's rate cuts?

Goldman Sachs predicts two 25 basis point cuts later this year and warns of potential consecutive cuts in the coming years.

What is the projected terminal rate according to BofA?

BofA estimates that the terminal rate could fall to between 2.75% and 3.00% after further cuts.

What key factors influence the Fed's rate cut decisions?

The Fed's decisions are influenced by current inflation trends, unemployment rates, and overall economic conditions.

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