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the federal reserve launched a globally watched interest rate cut cycle by 50 basis points overnight. although this was in line with market expectations, it was undoubtedly a big step forward for many major banks such as ubs and hsbc, which had called for a 25 basis point rate cut.

now that the "shoe" has dropped, wall street has begun to shift its attention to the fed's next move and the possibility of further big moves. investment banks have different opinions on this.

the dot plot released overnight showed that there is still at least 50 basis points of room for interest rate cuts this year. combined with powell's "hawkish" stance at the monetary policy press conference, ubs is currently more inclined to believe that the federal reserve will slow down the pace of interest rate cuts and cut interest rates by 25 basis points at each of the remaining two interest rate meetings this year.

compared with the cautious ubs, wall street peers jpmorgan chase and bank of america appear more optimistic and radical. jpmorgan chase predicts that the federal reserve will cut interest rates by another 50 basis points in november, while bank of america predicts that it will cut interest rates by another 75 basis points this year.

given the dovish dot plot, citigroup believes it is difficult to judge whether there will be a significant rate cut next. goldman sachs and hsbc expect the fed to cut interest rates by 25 basis points each time in the next six interest rate meetings and reach the end point of interest rates in the middle of next year.

jpmorgan chase: another 50 basis point reduction depends on the labor market. bank of america: another 75 basis point reduction within the year!

michael feroli, chief u.s. economist at jpmorgan chase & co., insists the fed will cut rates by another 50 basis points in november, but that will depend on the extent of slack in the u.s. labor market.

feroli wrote in his latest report:

we still expect (us) interest rates to normalize faster than the median indicated by the dot plot. we expect a 50 basis point rate cut at the next meeting in early november, but this depends on whether the two (non-farm) payroll reports released in the meantime are further weaker.

if the labor data is more dovish, it would support a “goldilocks” scenario in which the fomc cuts interest rates by 25 basis points at each of its remaining meetings for the year.

it is worth mentioning that feroli correctly predicted the extent of the fed's rate cut. since august 2, he has insisted that the fed will cut interest rates by 50 basis points in september, and he still sticks to his prediction even after a colleague at citi abandoned the same bet.

even as jpmorgan was cheering its victory, other major wall street banks began to adjust their forecasts for the next path of interest rates.

bank of america raised its forecast for the fed's interest rate cuts for the rest of the year to 75 basis points, from its previous expectation of 50 basis points.

the agency's global research department wrote in a report released on wednesday:

we believe the fed will be forced to cut rates further.

bofa also said that after the big rate cut, "we doubt the fed will be willing to deliver a hawkish surprise."

goldman sachs, hsbc: interest rates will reach their end point by the middle of next year

jan hatzius, chief economist of goldman sachs, predicts that the federal reserve will cut interest rates by 25 basis points continuously from the interest rate decision in november this year to june next year, and the interest rate will reach the end point of 3.25%-3.50% by mid-2025.

today’s 50bp cut suggests greater urgency, and with most fomc members expecting the pace of rate cuts to accelerate in 2025, we believe a longer period of sequential rate cuts is the most likely path.

however, it is still "hard to say" whether the interest rate will be cut by 25 basis points or 50 basis points in november, hatzius pointed out that the decisive factor will be the next two non-farm payroll reports. according to the cme fed watch tool, the probability of a 50 basis point rate cut in november is only 31%.

hsbc also currently expects the fed to cut interest rates by 25 basis points at each of the next six policy meetings, bringing the target rate to 3.25%-3.50% by june next year. however, if the unemployment rate stabilizes at some point in the future, this may provide the fomc with a reason to slow down or even stop rate cuts.

citi: "it's hard to say whether there will be a significant rate cut next"

as of now, traders are betting the fed will cut rates by another 70 basis points this year.

citi trader akshay singal accurately predicted a 50 basis point rate cut a few weeks ago. however, after seeing the rare dissenting votes in the fed's resolution and the latest dot plot that was not dovish enough, singal said it was difficult to judge the pace of subsequent rate cuts.

currently, only slightly more than half of policymakers expect to cut interest rates by at least 50 basis points this year. in this regard, singal believes that although powell has great power in promoting policy and his attitude is obviously more dovish than other members, due to internal differences, the extent of subsequent interest rate cuts is questionable:

powell wields a lot of power, and the key over the next few months will be to understand just how dovish he really is.

data released on thursday showed that the number of first-time claims in the united states in the week ending september 14 was lower than expected, and the labor force once again demonstrated its resilience, pushing the 10-year u.s. treasury yield up 4 basis points to 3.76% in the short term.

"the treasury yield curve is likely to move sideways further in the coming weeks," strategists including jay barry wrote. "until we see the september jobs report, money markets are unlikely to anticipate whether rate cuts will accelerate or whether the neutral rate will decline."