Most investment banks expect the Federal Reserve to cut interest rates in September, while Morgan Stanley and Bank of America remain cautious
Large investment banks such as Barclays, BNP Paribas, and Deutsche Bank expect the Federal Reserve to cut interest rates by 25 basis points in September. Federal Reserve Chairman Jerome Powell mentioned labor market risks at the Jackson Hole annual meeting, suggesting an increased likelihood of rate cuts. Market expectations for a rate cut have risen to 87%. Morgan Stanley and Bank of America remain cautious, believing that attention should be paid to subsequent economic data
The Zhitong Finance APP noted that major investment banks, including Barclays, BNP Paribas, and Deutsche Bank, now expect the Federal Reserve to cut interest rates by 25 basis points in September. Previously, at the Jackson Hole annual meeting, Federal Reserve Chairman Jerome Powell changed his tone and discussed the increasing risks in the labor market.
Powell's speech at the Jackson Hole annual meeting emphasized a shift in the Federal Reserve's response mechanism, now placing greater importance on labor market risks.
Powell stated, "This unusual situation indicates that the downside risks to employment are rising." He warned that these risks could quickly manifest in the form of layoffs and a surge in unemployment rates.
In a report released last Friday following Powell's speech, Barclays brought forward its previous expectation for a rate cut from September 2026 to September 2025, stating that Powell's remarks introduced a "easing bias" and raised the threshold for not cutting rates.
A team led by BNP Paribas economist Calvin Tse wrote, "Powell clearly indicated that the Federal Reserve intends to make a 'tweak' rate cut in September, unless the data suggests otherwise." They changed the brokerage's long-standing position that the Federal Reserve would remain on hold, now predicting that the Federal Reserve will cut rates in September and December.
Meanwhile, Macquarie and Deutsche Bank have both revised their expectations, forecasting that the Federal Reserve will cut rates by 25 basis points in September and December, respectively.
Morgan Stanley and Bank of America are the only two major Wall Street brokerages that have not yet anticipated a rate cut by the Federal Reserve in September. Morgan Stanley stated that if upcoming labor and inflation data confirm further economic weakness, the Federal Reserve is likely to cut rates in September.
According to the Federal Reserve Watch tool from the Chicago Mercantile Exchange (CME), the market currently estimates an 87% probability that the Federal Reserve will cut rates by 25 basis points at the September policy meeting, up from 75% before Powell's speech.
The Federal Open Market Committee (FOMC), responsible for setting interest rates, is scheduled to meet again on September 16 and 17.
Meanwhile, Goldman Sachs and JP Morgan reiterated their expectations for the Federal Reserve to cut rates in September, aligning with the broader market view that weak data may justify policy easing
