Wall Street analysts are doubling down on their predictions for further interest rate cuts after the Federal Open Market Committee’s (FOMC) bold move to slash rates by a substantial 50 basis points on Wednesday. Even Fed Chair Jerome Powell’s initially cautious remarks, which sent a ripple of uncertainty through the markets, haven’t dampened the belief that the central bank is leaning towards a more aggressive easing strategy.
“The Fed attempted to sell its 50bp rate cut today as a ‘recalibration’ of policy rates, rather than a sign of concern about the health of the labor market,” said Bank of America U.S. economist Aditya Bhave. Bhave expects another 75 basis points of cuts in the fourth quarter and 125 basis points by 2025, ultimately bringing the neutral rate to a range of 2.75%-3%.
The S&P 500 index, tracked by the SPDR S&P 500 ETF Trust SPY, initially soared to record highs following the rate cut announcement. However, it experienced a pullback during Powell’s press conference. The index is poised to open at all-time highs on Thursday, driven by a strong rally during premarket trading.
Adding fuel to the bullish sentiment, positive labor market data released Thursday indicated that weekly jobless claims declined by 17,000 to 214,000 for the week ending Sept. 14, falling well below expectations of 230,000. Continuing jobless claims also saw a steeper-than-anticipated drop to 1.83 million, down from 1.843 million and lower than the predicted 1.85 million.
This robust labor market performance has further emboldened Wall Street investors, with veteran investor Ed Yardeni making a bold market call. Yardeni predicts the easing stance from the Federal Reserve will propel the stock market to reach new all-time highs after the November presidential election. “Fed Chair Jerome Powell reiterated that the Fed’s main focus now is to keep a lid on the unemployment rate,” said Yardeni. “Now that the Fed is stimulating the economy, the hard-landing crowd should disperse,” he added.
Goldman Sachs, a leading investment bank, also echoes this optimistic outlook. “The greater urgency suggested by today’s 50bp cut and the acceleration in the pace of cuts that most participants projected for 2025 makes a longer series of consecutive cuts the most likely path,” said Goldman Sachs economist Jan Hatzius. Hatzius emphasized the significance of upcoming employment reports, suggesting that the decision between a 25- and 50-basis-point cut in November will likely depend on these data points. The bond market, as reflected by CME’s FedWatch tool, is currently anticipating a 34-basis-point reduction for the next meeting. Goldman Sachs now projects a series of 25-basis-point cuts extending from November 2024 through June 2025, targeting a terminal rate of 3.25%-3.5%.
The consensus among Wall Street analysts appears to be that the Fed’s aggressive easing stance, combined with a healthy labor market, is setting the stage for continued growth and potential record highs for the stock market. While the path ahead remains uncertain, the recent market activity and expert forecasts point to a bullish outlook, at least in the near term.
