Wall St brokerages bring forward bets on timing of Fed rate cut

By Reshma Rockie George and Susan Mathew

(Reuters) -Wall Street brokerages advanced their expectations over the timing of the first interest-rate cut after Federal Reserve Chair Jerome Powell signaled a likely end to the historic tightening in monetary policy that began in March 2022.

Goldman Sachs said it expects the easing cycle to begin in March as the U.S. central bank kept the rates unchanged in its latest policy meeting, saying inflation was dropping faster than expected.

The stark shift in the Fed outlook with 17 of 19 policymakers seeing rates lower by the end of 2024 fueled bets of rate cuts as early as March.

U.S. borrowing costs are now in the 5.25%-5.5% range as the Fed raised rates by 525 basis points (bps) since March 2022 to tame a surge in inflation after the COVID-19 pandemic.

Goldman Sachs expects three straight rate cuts of 25 bps in March, May and June followed by one per quarter. They had earlier expected only two cuts beginning in the third quarter of 2024.

UBS Global Wealth Management sees a May start to cuts, while J.P.Morgan, BofA Global Research and Barclays expect easing to begin June.

UBS and Barclays expect three 25 bps cuts next year, while JPM sees 125 bps in cuts by 2024 end. That is more dovish than Barclays’ prior expectation of just one rate cut toward the end of the year. JPM had expected a July start to policy easing.

“Fed officials will refer to the slowing inflation backdrop as the reason for their cuts, but we think they are also motivated by growing concerns that a recession will ensue without an easing in financial conditions,” Citigroup strategists said.

Citi expects a total of 100 bps in cuts next year beginning in July. “Banished in coming months will be discussions of upside risk to inflation, but these remain significant in our view,” Citi said.

Barclays said cuts could begin sooner than its June projection if monthly inflation remains softer than its forecasts. However, it echoed Citi’s concerns that inflation could rise again.

Traders now see the Fed funds rate coming down by more than one full percentage point by 2024 end. [FEDWATCH]

Asset manager BlackRock’s investment arm sees Fed rate cuts coming in “around the end of the spring into the summer”.

(Reporting by Reshma Rockie George and Susan Mathew, graphic by Bansari Mayur Kamdar in Bengaluru; Editing by Sonia Cheema and Arun Koyyur)