Major brokerages, including Barclays PLC, BNP Paribas SA and Deutsche Bank AG, expect a 25-basis-point US Federal Reserve rate cut next month following Fed Chair Jerome Powell’s shift in tone at the Jackson Hole symposium toward rising risks in the labor market.
“This unusual situation suggests that downside risks to employment are rising,” Powell told international economists and policymakers at the Fed’s annual conference in Wyoming on Friday, adding that such risks could materialize quickly in the form of layoffs and a spike in unemployment.
In notes released on Friday after Powell’s speech, Barclays pulled forward its previously expected September next year cut to a cut next month.
Photo: Reuters
His speech introduced “an easing bias” and raised the bar for not cutting, the the London-based bank said.
“Powell made [it] clear that the Fed intends to deliver a ‘fine-tuning’ rate cut in September unless the data dictates otherwise,” BNP economists led by Calvin Tse (謝文華) wrote in a note.
They reversed the brokerage’s long-standing call for the Fed to stay on hold, forecasting cuts next month and in December.
Meanwhile, Macquarie Capital Ltd and Deutsche Bank revised their expectations of a cut next month and in December, respectively, to a 25-basis-point cut each in those two months.
Bank of America Corp, which expects no rate cuts this year, said “barring further deterioration of the labor market, we think that the Fed would risk a policy error if it were to cut rates,” and pointed to signs of a rebound in economic activity and persistent inflation pressures.
Morgan Stanley also does not expect a cut next month yet, but said such a move is likely if incoming labor and inflation data confirm further softening.
Markets are now pricing in an 87 percent chance of a quarter-point rate cut at the Federal Open Market Committee (FOMC) policy meeting next month, the CME FedWatch Tool said, up from 75 percent before Powell’s speech.
The rate-setting FOMC is scheduled to meet again on Sept. 16 and 17.
Meanwhile, Goldman Sachs Group Inc and JPMorgan Chase & Co reaffirmed their expectations for a cut next month, aligning with the broader market view that softening data might warrant policy easing.
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