(Bloomberg) -- Wall Street banks are ramping up expectations for an aggressive Federal Reserve easing cycle based on the latest evidence that the labor market is cooling.
Economists at Bank of America Corp., Citigroup Inc., Goldman Sachs Group Inc. and JPMorgan Chase & Co. revamped their forecasts for US monetary policy Friday after data showed the US unemployment rate rose again in July, calling for earlier, bigger or more interest-rate cuts.
Economists at Citigroup — already among the most aggressive in calling for the Fed to cut interest rates this year — said they expect half-point rate cuts in September and November and a quarter-point cut in December, having previously predicted quarter-point cuts at all three meetings. The Fed will then reduce rates by a quarter point at each meeting until mid-2025, bringing the policy band to 3%-3.25%, Veronica Clark and Andrew Hollenhorst predicted.
JPMorgan economist Michael Feroli went a step further. While he also predicted half-point rate cuts in September and November, followed by quarter-point reductions at every subsequent meeting, Feroli said there's "a strong case to act" before the next meeting on Sept. 18. Fed Chair Jerome Powell may not "want to add more noise to what has already been an event-filled summer," however, he wrote.
Goldman economists led by Jan Hatzius added a third quarter-point rate cut, in November, to their previous 2024 forecast for September and December moves. While the July data may overstate weakness in the labor market, if the August report is also soft, a half-point rate cut in September "would become likely," they wrote.
Bank of America economists led by Michael Gapen, who'd been a holdout for rate cuts beginning in December, said they now look for the first move in September.
Interest-rate swaps show that traders see a more-than-70% chance of half-point move in September, and are pricing in a total of about 115 basis points of reductions by year-end.
(Adds JPMorgan's call in fourth paragraph. A previous version corrected year in third paragraph.)
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