Wall Street Banks That Said There Would Be No Rate Cut This Year...Shift to 'September Cut'

BNP shifts from 'hold rates this year' to expecting two cuts in September and December

BofA: 'Cutting rates without further weakening in employment would be a mistake'

Wall Street banks, which had previously expected no rate cuts in September, are now forecasting that the Federal Reserve, following Jerome Powell's hint at a possible rate cut, will lower rates by 25 basis points (1bp=0.01%) in September.

According to Reuters on the 25th (local time), Powell mentioned at the Jackson Hole Symposium that it is necessary for the Federal Reserve's response to change, giving more weight to risks in the labor market.

Powell warned, "This unusual situation suggests that downside risks to employment are increasing."

After Powell's speech, Barclays moved up its forecast for a rate cut from September 2026 to September 2025.

Economists at BNP said, "Powell made it clear the Fed is willing to make a 'finetuning' rate cut in September." They reversed their prior view that rates should remain on hold and now expect the Fed to make rate cuts in both September and December.

Meanwhile, Macquarie and Deutsche Bank had initially each predicted the first rate cut in September and December, respectively, but both banks have now changed their forecasts and expect 25bp cuts in both September and December.

On the other hand, Bank of America (BofA) still points out that a rate cut could be a policy mistake. The bank stated, "Unless the labor market deteriorates further, the Fed risks making a policy mistake if it cuts rates," and highlighted the continued pressure of inflation.

Morgan Stanley also maintains that, based on the data so far, a September rate cut still looks difficult. Morgan Stanley commented that the likelihood of a rate cut will increase only if further weakness is confirmed in labor and inflation data.

According to CME Group’s FedWatch tool, the market now reflects an 87% chance of a 0.25% rate cut at the September policy meeting, up from 75% before Powell's speech.

The next meeting of the rate-setting Federal Open Market Committee (FOMC) is scheduled for September 16th and 17th.

Goldman Sachs and JPMorgan reaffirmed their expectations of a September rate cut. Both noted that economic indicators are weakening, aligning with the broader market view that a rate cut may be necessary.

Guest Reporter Jeong-A Kim kja@hankyung.com