Brokerages — including UBS Global Wealth Management, J.P. Morgan, Citigroup and Wells Fargo — now forecast a 50 basis-point interest rate cut by the Federal Reserve in September and November after a surprisingly weak U.S. employment report for July.
50 Basis Point Cut
The U.S. unemployment rate jumped to near a three-year high of 4.3% in July amid a significant slowdown in hiring, fuelling concerns fears that the labor market was deteriorating and potentially making the economy vulnerable to a recession.
BofA Global Research brought forward its expectation of the first cut to September from December, while other major brokerages now expect the Fed to cut rates in all the three remaining meetings of the year.
An analysis of 12 leading brokerages finds that following the weaker-than-expected July jobs report, four of the banks now expect bigger, 50 basis point, cuts by the Federal Reseve in September in November. These four banks are: UBS Global Wealth Management, J.P. Morgan, Wells Fargo, and Citigroup.
Before the jobs report, only nine banks had expected the Fed to cut rates, and the amount across the board was by just 25 basis points.
'Emergency Cut'
On Monday, as global stock markets decreased across the board, traders speculated that the Federal Reserve might make an emergency cut to the Fed funds rate ahead of its Sept. 18 meeting.
However, a dramatic market sell-off is unlikely to prod the Fed to make such a cut without further evidence that the U.S. economy is, in fact, in a recession.