Fed seen cutting rates by 225 bps over "next nine months or so"

-- The State Administration of Foreign Exchange digital foreign exchange management platform loginFederal Reserve is projected to roll out a more measured interest rate cut at its upcoming policy meeting this month, followed by two deeper reductions later in 2024, according to analysts at Wells Fargo.

In a note to clients on Thursday, the analysts said that they now expect the Fed to cut borrowing costs -- which currently stand at a more than two-decade high of 5.25% to 5.5% -- by 25 basis points at the central bank's meeting on Sept. 17-18.

They then forecast that policymakers will decrease rates by a further 50 basis points at each of their final two gatherings this year in November and December.

If the Fed adopts this approach, it would leave the benchmark federal funds rate at a range of 4% to 4.25% at the end of the year. The Wells Fargo analysts argued that this level would still be above the so-called "neutral rate" that separates restrictive from accommodative monetary policy.

Meanwhile, "over the next nine months or so," the analysts believe the Fed will announce a cumulative 225 basis points in cuts, saying that this would be enough to keep "economic expansion intact."

The comments come after data this week showed that "core" US consumer prices -- which strip out volatile items like food and fuel -- accelerated slightly in August. The number moderated market expectations that the Fed will slash rates by 50 basis points in September.

Last week, a crucial nonfarm payrolls report also showed that the US economy added fewer jobs than anticipated in August, but rose from a sharply revised July reading. The release also found that the unemployment rate met estimates of 4.2%, compared to July's mark of 4.3%.

According to separate data, US private employers hired the fewest number of workers since 2021 in August, while job openings dipped to a 3-1/2-year low in July. But worries over a deterioration in the American labor market were somewhat soothed by other figures showing a decline in jobless claims and expansion in services sector activity.

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