Banking giants now forecast at least two interest rate cuts in 2025
News Summary
Following a weak August jobs report, several financial institutions and market analysts are now projecting that the US Federal Reserve will cut interest rates from the current target of 4.25%-4.5% at least twice in 2025. Bank of America reversed its prior stance of no rate cuts, now forecasting two 25 basis point (BPS) cuts in September and December. Economists at Goldman Sachs and Citigroup project three 25 BPS cuts in 2025, starting in September and continuing through October and November or December. Data from the Chicago Mercantile Exchange (CME) Group indicates that over 88% of traders now expect a 25 BPS rate cut at the next Federal Open Market Committee (FOMC) Meeting in September. Federal Reserve Chair Jerome Powell signaled a potential September rate cut during his August 22 keynote speech, amidst signs of a weakening US jobs market. This comes after the US Bureau of Labor Statistics significantly revised down 2024 job numbers and warned of further potential downward revisions for 2025, reinforcing expectations for monetary easing.
Background
The Federal Reserve operates under a dual mandate of achieving maximum employment and maintaining price stability. Throughout 2024, the Fed maintained a relatively high federal funds rate to combat persistent inflationary pressures, which had a dampening effect on economic activity. However, moving into 2025, the jobs market has shown significant signs of weakening, including multiple downward revisions of historical data and lower-than-expected hiring growth. This has shifted market expectations towards an easing monetary policy to avert a harder economic landing. President Donald J. Trump, re-elected in 2024, typically favors lower interest rates to stimulate economic growth.
In-Depth AI Insights
What are the underlying pressures driving the Fed's sudden pivot, and what does this imply for its independence? The Fed's shift in stance is primarily driven by significant deterioration in the labor market and signs of decelerating inflation. Weak job reports, coupled with substantial downward revisions to historical employment figures, directly challenge the Fed's