STANDARD CHARTERED (StanChart) expects the US Federal Reserve to cut interest rates by 50 basis points (bps) at its policy meeting this month, double its earlier projection of a 25-bp reduction, following a soft August job report.
Data on Friday showed US job growth weakened sharply in August and the unemployment rate rose to a near four-year high of 4.3%, confirming a softening labor market and bolstering the case for a rate cut this month. In a client note on Friday, the brokerage said that the labor market had shifted 鈥渇rom solid to soft in less than six weeks.鈥
鈥淎ugust labor market data has paved the way for a 鈥榗atch-up鈥 50-basis-point rate cut at the September FOMC (Federal Open Market Committee) meeting, similar to what occurred at this time last year.鈥
After a 50-bp cut, the market could take time to price in a slower subsequent pace of cuts, the brokerage added.
Meanwhile, Morgan Stanley and Deutsche Bank do not consider the August job report weak enough to warrant a 50-bp rate cut in September, though they noted it could pave the way for reductions at consecutive meetings.
Last month, Fed Chairman Jerome H. Powell signaled a rate cut was possible at the Sept. 16-17 policy meeting, citing rising labor market risks, while cautioning that inflation remained a threat.
Barclays revised its forecast on Friday to include 25-bp reductions at each of the remaining meetings this year, while Macquarie brought forward its expected December cut to October.
Bank of America also revised its outlook, now expecting 25-bp cuts each in September and December, after previously forecasting no cuts this year.
Markets are pricing in a 90% chance of a 25-bp rate cut next week and a 10% probability of a larger 50-bp reduction, according to the CME FedWatch Tool. 鈥 Reuters
