Bank of America Global Research has adjusted its forecast for the anticipated Federal Reserve interest rate cut, moving the date from December to October. This change is attributed to emerging signs of a weakening labor market. Presently, BofA stands alone among major Wall Street firms, predicting only one additional 25-basis-point rate cut for this year.
Current Market Expectations
In contrast, leading financial firms like Goldman Sachs and Morgan Stanley anticipate rate cuts at both upcoming Federal Reserve meetings. BofA has expressed caution, warning that the Federal Reserve might risk “over-easing” in response to market conditions.
Impact of the Government Shutdown
- The U.S. government shutdown, which commenced on Wednesday, has hindered the release of critical economic data.
- This data is crucial for the Fed’s assessment of whether a rate cut is warranted.
- The monthly jobs report, initially set for release on Friday, has been postponed due to the shutdown.
As investors await further information, they are left to interpret other indicators that signal a cooling labor market, reinforcing expectations for a rate cut. Bank of America asserts that even in the absence of the non-farm payroll (NFP) report, the existing trends in labor data are sufficient to justify a rate reduction before the Fed’s October meeting.
Probability of Rate Cuts
According to CME Group’s FedWatch tool, investors are currently assigning a 98% probability to a 25-basis-point rate cut in October. There is also a 90% probability projected for an additional cut in December. These numbers reflect the market’s growing consensus on the need for monetary easing amidst evolving economic conditions.
