MUFG:
The dollar's recovery after the Federal Reserve cut interest rates by 50 basis points, as some expected, is unlikely to last as the currency remains vulnerable to the U.S. rates curve pricing in more cuts
The 'buy the rumour, sell the fact' philosophy may see some further dollar buying near-term but we would be surprised if there was much momentum to that trade. The Fed will likely cut rates faster than its projections suggest and faster than the forward overnight index swaps curve
ANZ:
The U.S. Federal Reserve may have an additional 150 bps of interest rate cuts this cycle after it cut 50 bps overnight. The Fed's priority is to ensure economic activity and the labor market remains solid while inflation continues to ease sustainability
Powell suggested that if some of the employment and inflation data were known at the July meeting, the easing cycle would have started then. The 50bp cut overnight was to ensure the Fed doesn't fall behind the curve. ANZ Research expects the Fed to cut by 25 bps at successive meetings with a total of 200 bps easing this cycle
BBVA:
We now expect the Fed to take the policy stance to the 3.0% neutral steady-state level by September of next year. We anticipate two 25bp rate cuts at the upcoming November and December meetings and six consecutive 25bp rate cuts next year. Heightened downside risks to the full employment goal (not our baseline scenario) would trigger a faster pace, while stickier-than-expected inflation would make the Fed move more slowly. Having said this, in view of monetary policy lags, achieving a soft landing is clearly now the Fed’s main worry.
Unicredit:
The dollar rises after briefly falling to a near 14-month low on Wednesday in reaction to the Federal Reserve's decision to cut interest rates by 50 basis points. The dollar's recovery is probably because the move did not come out of the blue after recent adjustments in market rate-cut expectations and because [Fed Chair Jerome] Powell made it clear that the 50 basis-point easing did not represent the new pace
J.P. Morgan:
The Fed has signaled a more cautious approach to the easing cycle. Powell communicated well by balancing the urgency of returning to a neutral interest rate and acknowledging the relatively stable economic state. Focus has also shifted more towards a jobs-first approach rather than inflation
The size of rate cuts may be less important than the end-goal, which is aligning the policy rate closer to the Fed's view of neutral by 2026, through the additional 150 base point cuts projected through end-2025. If nominal growth and the easing cycle keeps at a steady pace, equities and bonds should benefit
Goldman Sachs:
The rationale for the larger cut and the key theme of the meeting was the shift in focus from inflation risks to employment risks in light of the recent softening in the labor market data
Now expect a longer series of consecutive 25bp cuts from November 2024 through June 2025, compared with its previous forecast of consecutive cuts this year and quarterly cuts next year. See a Fed terminal rate of 3.25% to 3.5% by June 2025.
Fed Chair Powell said that the 50bp rate cut pace should not be assumed as the new norm. The deciding factor will likely be the nest two employment reports
Rabobank:
During the press conference, Powell had trouble clearly explaining the reason for the large cut, because he did not want to admit that this ‘recalibration’ was needed because the FOMC had fallen behind the curve.
Meanwhile, the large cut seemed counterintuitive to the repeated claim that the economy was strong. The recalibration argument is clashing with the message this large cut sends.
What’s more, with a 50 bps cut without compelling data or forecasts the Fed is taunting former and possibly next President Trump. This could have serious repercussions next year. The sole dissenter, Michelle Bowman, may just have improved her chance of becoming the next Fed Chair.
Looking ahead, if this was truly a recalibration and 50 has not become the new 25, we still expect 25 bps at each of the three upcoming scheduled meetings in November, December and January.
What happens after January will to a large extent depend on the economic policies of the next administration. A Trump victory would likely lead to a universal tariff and a rebound in inflation that should stop the Fed’s cutting cycle in its tracks. A Harris victory would likely be less inflationary and give scope for additional rate cuts in 2025.
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