As the Federal Reserve (FRB) delivered a "big cut" (a 0.5% interest rate cut) this month while stating that it wouldn't rush further reductions, investment institutions are divided over the pace and size of future cuts.

Bloomberg reported on the 19th that major investment institutions like JPMorgan, Goldman Sachs, and Bank of America (BofA) have differing outlooks, suggesting that uncertainty in financial markets may persist until the projections become clearer.

The Fed lowered its upper target interest rate by 50 basis points to 5.0% and indicated that another 50 basis point cut may occur this year (in November or December), with an additional 100 basis points likely next year. During a press conference, Federal Reserve Chair Jerome Powell emphasized that the big cut was more about supporting the labor market than addressing a severe economic downturn, using the term "recalibration" to describe the policy, and he noted that the Fed is not in a hurry to implement aggressive cuts.

CNBC noted that it is unprecedented for the Fed to initiate a rate-cutting cycle with such a significant cut without signs of a recession or crisis. Although there was only one dissenting vote on the decision, Reuters reported that the 25 basis point cut view may have competed during the actual discussion.

Currently, the market is pricing in a 70-basis point reduction by year-end, anticipating more aggressive cuts than the Fed's projections. JPMorgan's chief economist Michael Feroli, who accurately predicted this big cut, also expects another significant cut in November, though he emphasized that the size of the November cut depends on labor market conditions.

BofA predicts that the Fed will lower rates by 75 basis points this year and another 125 basis points next year in an aggressive approach.

Citigroup maintains its forecast for a 50-basis point cut in November and a 25-basis point cut in December, totaling 75 basis points this year, with additional 25-basis point cuts next year, eventually bringing the upper target rate down to 3.25%.

On the other hand, Goldman Sachs' chief economist Jan Hatzius expects the Fed to implement six consecutive 25-basis point cuts from November through June next year, ultimately lowering the upper rate to 3.5%.

Morgan Stanley also anticipates two rate cuts this year, followed by four more in the first half of next year, bringing the rate down by 25 basis points each time. Barclays expects two 25-basis point cuts this year, with three more next year, eventually bringing the upper rate to 3.75%. Deutsche Bank estimates that the Fed will lower rates by 25 basis points by March next year, with additional quarterly cuts, bringing the rate down to 3.5% by the end of next year.

TD Securities predicts two more 25-basis point cuts this year, followed by additional cuts at every Federal Open Market Committee (FOMC) meeting next year. Wells Fargo commented on the historic level of market uncertainty, forecasting a total reduction of 150 basis points in the case of a soft landing and 350 basis points in the event of a hard landing. However, Jason Thomas of the Carlyle Group raised concerns that inflation could resurface, making the 4.5% rate the "new normal."

Former U.S. Treasury Secretary and Harvard Professor Lawrence Summers also warned that inflation could prevent the Fed from cutting rates as much as expected, suggesting that market expectations for rate cuts might be overly optimistic.
[Source: Yonhap]