Wall Street Ramps Up Interest Rate Cut Bets After Fed Meeting: 'The Hard-Landing Crowd Should Disperse,' Economist Says

Wall Street analysts are increasing their expectations for further interest rate cuts following the Federal Open Market Committee’s decision to slash rates by a substantial 50 basis points on Wednesday.

Even Fed Chair Jerome Powell‘s cautious remarks, which initially rattled the markets, have not dampened the belief that the central bank is heading toward a more aggressive easing stance.

“The Fed attempted to sell its 50bp rate cut today as a ‘recalibration’ of policy rates, rather than a sign of concern about the health of the labor market,” said Bank of America U.S. economist Aditya Bhave.

Bhave expects another 75 basis points of cuts in the fourth quarter and 125 basis points by 2025, bringing the neutral rate to a range of 2.75%-3%.

The S&P 500 index, tracked by the SPDR S&P 500 ETF Trust (SPY) , initially reached record highs after the rate cut decision but pulled back during Powell’s press conference.

The index is expected to open to all-time highs on Thursday amid a strong rally during premarket trading.

Positive labor market data released Thursday indicated that weekly jobless claims declined by 17,000 to 214,000 for the week ending Sept. 14, well below expectations of 230,000. Continuing jobless claims also fell more than expected to 1.83 million, down from 1.843 million and below the predicted 1.85 million.

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“Fed Chair Jerome Powell reiterated that the Fed’s main focus now is to keep a lid on the unemployment rate,” said Yardeni.

“Now that the Fed is stimulating the economy, the hard-landing crowd should disperse,” he added.

Goldman Sachs Expects Rate Cuts At Each Meeting

“The greater urgency suggested by today's 50bp cut and the acceleration in the pace of cuts that most participants projected for 2025 makes a longer series of consecutive cuts the most likely path,” said Goldman Sachs economist Jan Hatzius.

Hatzius highlighted the significance of upcoming employment reports, indicating that the choice between a 25- and 50-basis-point cut in November could hinge on these data points.

The bond market is pricing in a 34-basis-point reduction for the next meeting, according to CME‘s FedWatch tool.

Goldman Sachs now projects a series of 25-basis-point cuts extending from November 2024 through June 2025, targeting a terminal rate of 3.25%-3.5%.

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