TLDR
- Standard Chartered now expects a 25-basis-point rate cut from the Fed this week.
- JPMorgan, Morgan Stanley, and Nomura have also revised forecasts to include a rate cut.
- Soft economic data and dovish Fed comments have triggered the revised rate cut outlook.
- Standard Chartered sees a 60-40 chance of the Fed cutting rates this week.
As the U.S. Federal Reserve’s meeting approaches this week, Standard Chartered has revised its forecast to predict a 25-basis-point rate cut. This change aligns with recent shifts made by top brokerages such as JPMorgan and Morgan Stanley. The adjustment in expectations comes after soft economic data in November and dovish remarks from Federal Reserve officials raised bets for a rate cut at the Fed’s final policy meeting for the year.
Revised Predictions Reflect Dovish Signals
Initially, many brokerages anticipated that the Fed would hold rates steady. However, the release of weaker-than-expected economic data in November, along with comments from prominent Fed officials, led several firms, including JPMorgan, Morgan Stanley, and Nomura, to revise their predictions. These brokerages now expect the central bank to reduce borrowing costs by 25 basis points.
Standard Chartered, in its revised forecast, cited the limited and unclear data releases post-shutdown but emphasized that an insurance cut to manage risks seemed increasingly likely. While the bank puts the odds of a December rate cut at 60-40, it acknowledges the uncertain nature of current economic data.
A Close Call for the Fed
While the shift in forecasts signals a higher likelihood of a rate cut, Standard Chartered, along with Nomura, views the decision as a close call. There are expected to be significant dissenting opinions at the Fed meeting, with some officials likely to argue against a rate cut or advocate for a more aggressive reduction of 50 basis points.
Nomura analysts also noted that, while they expect a 25-basis-point cut this week, the decision will not be straightforward. They anticipate at least four hawkish dissents from Fed members, alongside a potential dovish dissent in favor of a more substantial 50 basis-point cut.
The Fed’s Next Steps and Future Outlook
Looking ahead, Standard Chartered does not foresee the Fed making further cuts in 2026. Instead, the bank predicts that the central bank will maintain its current stance after December’s decision.
Nomura, however, continues to anticipate additional rate cuts next year, predicting a 25-basis-point reduction in both June and September. They also expect that the next Fed chair could lean towards more aggressive easing, should President Joe Biden appoint White House economic advisor Kevin Hassett to replace Jerome Powell.
As traders price in an 89.6% chance of a 25-basis-point cut this week, the market will closely watch the Federal Open Market Committee’s meeting on December 9-10. The outcome of this meeting could influence expectations for economic growth and monetary policy well into 2026.
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