Big Banks reevaluating Fed rate cut forecasts

Big Banks like JPMorgan Chase & Co. (JPM), Citigroup (C), Barclays (BCS), TD Bank (TD), Goldman Sachs (GS), and Bank of America (BAC) are reevaluating their forecasts on interest rate cuts by the Federal Reserve. The main consensus on Wall Street is that the Fed is on the path to initiate rate cuts at its September FOMC policy meeting.

Josh Schafer joins the Morning Brief team to review notes from top economists and strategists from major banks.

For more expert insight and the latest market action, click here to watch this full episode of Morning Brief.

This post was written by Luke Carberry Mogan.

Video transcript

Several banks are taking a closer look at their fed rate cut decisions.

Jp Morgan City, Goldman Sachs and more are adding or increasing the size or calling for earlier rate cuts this year.

They're doing all of that in some cases to discuss.

We have Yahoo Finance's very own, Josh Schaffer who's been looking across this, Josh, what do we know about this?

Yeah, brad.

So more economists are coming out and saying they expect the fed to cut more this year and perhaps cut deeper into than initially expected.

This of course, comes after that July Jobs report that had a surprise uptick in the unemployment rate, unemployment moving from 4.1% to 4.3% triggering the so called some rule your recession indicator triggers and overall just sort of fueling this feeling that had been happening, coming into that report that perhaps it was time for the fed to start cutting.

Now people feel like the fed is quote offside.

That's kind of the take away here from these economists.

And I'll cite Michael Foi over at JP Morgan.

How far offside is the fed with that restrictive policy rate that you're looking at on your screen right now, he estimates about 100 basis points.

So he's saying the fed needs to move quickly to get that rate down 100 basis points, a 50 basis point cut in September, a 50 basis point cut in November to get rates back to a level.

That is a little bit less restrictive to keep this economy on foot.

On that note, I should include that.

Of course, we have been talking a little bit more about recession coming from these economists that has been part of this story here.

But one thing I wanted to know Goldman Sachs raising the risk of recession from 15% to 25%.

That is not that large of an increase.

And I think that's important to highlight here, Goldman noting in that, that they still continue to see recession risk as quote limited.

And so yes, they're saying that risks have risen.

But when you just looked at that chart, they're not saying that risks are rather elevated.

And I think that's an important takeaway to get from the economy right now.

Risks are elevated to the downside.

Maybe we should have been expecting some aspects more of a hard landing than we were, but not a lot of economists are coming out right now and saying we now expect a recession in 3 to 6 months.

That is not what these calls are.

They think the Fed has time to act.

And if the fed does act, then the economy can still potentially get that soft landing.