Wall Street Forecasts Earlier Fed Rate Cuts Following Dovish Central Bank Tone

The sentiment among Wall Street brokerages has shifted, bringing forward their anticipated timeline for the first interest rate cut by the U.S. Federal Reserve. This adjustment follows an overnight shift in stance by the central bank towards a more dovish outlook.

Goldman Sachs has adjusted its forecast, now expecting a commencement of the easing cycle in March. They project a series of three consecutive 25 basis-point rate cuts in March, May, and June, followed by one cut per quarter thereafter. This contrasts with their prior expectation of only two cuts for the upcoming year.

J.P. Morgan has similarly revised its forecast, now foreseeing the first rate cut in June as opposed to their earlier prediction of July. They anticipate a reduction of the benchmark rate by 125 basis points by the close of 2024. Barclays, aligning with this trend, also anticipates a June initiation of easing, followed by two additional cuts in every alternate meeting throughout the next year. This stands in contrast to their previous estimate of just one cut in December 2024.

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During Wednesday’s meeting, the Fed maintained rates as anticipated. Chair Jerome Powell indicated a probable end to a historic tightening cycle in monetary policy. This shift comes amidst a faster-than-expected decline in inflation, with discussions on reducing borrowing costs now emerging.

The likelihood of a March start to rate cuts has been bolstered by this development, with traders now projecting a decrease in the Fed funds rate by at least one full percentage point by the close of 2024 [FEDWATCH].

The current Fed rate fluctuates within the 5.25%-5.5% range following a sequence of 525 basis points hikes that commenced in March 2022.

Barclays suggests that their projected June timeline for cuts might advance should monthly inflation rates continue to trend below their forecasts. However, they express concerns about a potential resurgence in inflation.

BlackRock’s investment arm, an asset manager, envisions Fed rate cuts materializing “around the end of the spring into the summer.”

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