Bank of America Forecasts Three US Rate Cuts this Year

A customer uses an ATM at a Bank of America branch in Boston, Massachusetts, US, October 11, 2017. REUTERS/Brian Snyder
A customer uses an ATM at a Bank of America branch in Boston, Massachusetts, US, October 11, 2017. REUTERS/Brian Snyder
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Bank of America Forecasts Three US Rate Cuts this Year

A customer uses an ATM at a Bank of America branch in Boston, Massachusetts, US, October 11, 2017. REUTERS/Brian Snyder
A customer uses an ATM at a Bank of America branch in Boston, Massachusetts, US, October 11, 2017. REUTERS/Brian Snyder

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.



Draghi Urges Reform, Investment Drive to Revive Lagging EU

Italian former prime minister and economist Mario Draghi speaks during a press conference about the future of European competitiveness at the EU headquarters in Brussels on September 9, 2024. (Photo by Nicolas TUCAT / AFP)
Italian former prime minister and economist Mario Draghi speaks during a press conference about the future of European competitiveness at the EU headquarters in Brussels on September 9, 2024. (Photo by Nicolas TUCAT / AFP)
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Draghi Urges Reform, Investment Drive to Revive Lagging EU

Italian former prime minister and economist Mario Draghi speaks during a press conference about the future of European competitiveness at the EU headquarters in Brussels on September 9, 2024. (Photo by Nicolas TUCAT / AFP)
Italian former prime minister and economist Mario Draghi speaks during a press conference about the future of European competitiveness at the EU headquarters in Brussels on September 9, 2024. (Photo by Nicolas TUCAT / AFP)

The European Union needs far more coordinated industrial policy, more rapid decisions and massive investment if it wants to keep pace economically with rivals the United States and China, Mario Draghi said on Monday in a long awaited report.
The European Commission asked the former European Central Bank chief and Italian prime minister a year ago to write a report on how the EU should keep its greening and more digital economy competitive at a time of increased global friction.
"Europe is the most open economy in the world so when our partners don't play according to the rules, we are more vulnerable than others," Draghi told a news conference.
In the opening section of a report set to run to some 400 pages, Draghi said the bloc needed additional investment of 750-800 billion euros ($829-884 billion) per year, up to 5% of GDP - far higher even than the 1-2% in the Marshall Plan for rebuilding Europe after World War Two.
"Growth has been slowing down for a long time in Europe, but we've ignored (it)," Reuters quoted Draghi as saying.
"Now we cannot ignore it any longer. Now conditions have changed: World trade is slowing, China is actually slowing very much and is becoming much less open to us... we've lost our main supplier of cheap energy, Russia."
EU countries had already responded to the new realities, Draghi's report said, but it added that their effectiveness was limited by a lack of coordination.
Differing levels of subsidies between countries was disturbing the single market, fragmentation limited the scale required to compete on a global level, and the EU's decision-making process was complex and sluggish.
"It will require refocusing the work of the EU on the most pressing issues, ensuring efficient policy coordination behind common goals, and using existing governance procedures in a new way that allow member states who want to move faster to do so," the report said.
It suggested so-called qualified majority voting - where an absolute majority of member states need not be in favor - should be extended to more areas, and as a last resort that like-minded nations be allowed to go it alone on some projects.
While existing national or EU funding sources will cover some of the massive investment sums needed, Draghi said new sources of common funding - which countries led by Germany have in the past been reluctant to agree to - might be required.
"If the political and institutional conditions are met, these projects would also call for common funding," the report said, citing defense and energy grid investments as examples.
EU growth had been persistently slower than that of the United States in the past two decades and China was rapidly catching up. Much of the gap was down to lower productivity.
Draghi's report comes as doubts emerge over the economic model of Germany, once the EU's motor after Volkswagen weighs its first ever plant closures there.
Draghi said the EU was struggling to cope with higher energy prices after losing access to cheap Russian gas and could no longer rely on open foreign markets.
The former central banker said the bloc needed to boost innovation and bring down energy prices while continuing to decarbonize and both reduce its dependencies on others, notably China for essential minerals, and increase defense investment.