US Economy: Major Banks Foresee Historic Rate Cuts

In a context of global economic turmoil, the four largest American banks anticipate a drastic change in the FED’s monetary policy. This forecast could have major repercussions not only on the American economy but also on the markets in general.

PM Tracy Chen joins @Marketwatch to share her expectations for Fed rate cuts amid growing economic turbulence and discuss potential opportunities in higher-quality bonds, particularly agency mortgage-backed securities: https://t.co/5JnO8qh6NM pic.twitter.com/fuIwNILjKb

— Brandywine Global (@BrandywineGIM) August 13, 2024

Why is the American economy pushing the FED to lower its rates?

The recession seems to be knocking at the doors of the American economy. The unemployment rate rose from 4.1% to 4.3% in July. This brings the number of unemployed Americans to approximately 7.2 million.

This deterioration in the labor market appears to be coupled with a staggering loss of $6.4 trillion in the global stock market over three weeks. These have triggered a red alert. Wells Fargo analysts state:

“The FOMC needs to quickly return to a ‘neutral’ policy stance, or it risks falling into a vicious cycle of labor market weakness.”

This precarious situation pushes experts to anticipate a significant reduction in interest rates.

The Shocking Forecasts of Banking Giants on the Economy

JPMorgan Chase, Bank of America, Wells Fargo, and Citi agree on a scenario of abrupt rate cuts by the FED.

• Bank of America believes a cut in September is practically assured.
• Wells Fargo expects a 50 basis points cut in September, followed by another of the same magnitude in November.
• JPMorgan Chase shares Wells Fargo’s view.
• As for Citi, its economists anticipate a total reduction of 100 basis points by November, with further cuts until reaching a range of 3 to 3.25% by mid-2025.

These forecasts reflect profound concerns about the health of the American and global economy.

These banking forecasts on the economy and the FED’s policy could reshape the global financial landscape. Investors will therefore need to remain vigilant in the face of potential economic upheavals that could occur in the coming days.