Wall St brokerages bring forward Fed rate cut expectations

[December 14, 2023]  (Reuters) -Wall Street brokerages brought forward their expectations for the U.S. Federal Reserve's first interest rate cut, with Goldman Sachs now seeing a March start to the easing cycle, after the central bank struck a dovish tone overnight.   

The Federal Reserve building is seen in Washington, U.S., January 26, 2022. REUTERS/Joshua Roberts/File Photo

Goldman Sachs expects three consecutive 25 basis-point (bps) rate cuts - in March, May, and June - followed by one per quarter after that. They had previously expected only two cuts next year.

J.P.Morgan sees the first cut in June versus their earlier forecast of July, and the benchmark rate lower by 125 bps by the end of 2024. Barclays also anticipates a June beginning to easing and two more cuts in every other meeting next year. That compares with their previous prediction of just one cut in December 2024.

The Fed on Wednesday kept rates unchanged, as expected, and Chair Jerome Powell said a historic monetary policy tightening cycle is likely over as inflation falls faster than expected and a discussion of cuts in borrowing costs is coming "into view."

This has strengthened the case for traders' bets of a March start to rate cuts. They now see the Fed funds rate coming down by at least one full percentage point by end-2024. [FEDWATCH]

The Fed rate is currently in the 5.25%-5.5% range after 525 bps of hikes that began in March 2022.

Barclays believes cuts could begin sooner than its June projection if monthly inflation prints continue to come in softer than its forecasts. However, it says it remains concerned that inflation could rise again.

Asset manager BlackRock's investment arm sees Fed rate cuts coming in "around the end of the spring into the summer."

(Reporting by Reshma Rockie George in Bengaluru; Editing by Sonia Cheema)

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