Bank of America, the most conservative among Wall Street's brokerages on the size of the Federal Reserve's expected interest rate cuts this year, has raised its forecast to match most of its peers after the recent nonfarm payrolls data.
BofA Global Research said on Sunday that it now expects the central bank to lower rates by 25 basis points (bps) in each of the three remaining policy meetings this year, compared with its previous forecast of two 25-bps cuts in September and December, according to Reuters.
The change was after data on Friday showed US employment rose less than expected in August, but a drop in the jobless rate to 4.2% suggested the labor market was not falling off the cliff to warrant a half-point rate cut this month.
BofA economists concurred, saying the hurdle for a 50-bps cut in September is high “because despite evidence of a cool labor market, layoffs remain low.”
Their latest forecast is the same as that of eight other brokerages, including Morgan Stanley and UBS Global Research, though it was not immediately clear if these brokerages would, or have already, altered their forecasts.
The jobs data had little effect on investors' bets on the size of a cut at the Fed's meeting next week. Interest rate futures signal a 70% chance of a 25 bps cut, nearly the same as last week.
Barclays and Goldman Sachs retained their call of three 25-bps cuts this year, saying the jobs data did not warrant a 50-bps cut.
Before the latest jobs data, UBS Global Wealth Management, JP Morgan, Wells Fargo, Citigroup and Wells Fargo Investment Institute had expected a 50 bps cut in September.
