Rate Cuts Loom as Fed Changes Stance on Labor Market Risks

Major brokerages anticipate a 25-basis-point rate cut by the U.S. Federal Reserve in September, following Chair Jerome Powell's comments at Jackson Hole highlighting labor market risks. Powell's remarks suggest the Fed may prioritize employment concerns, leading many to revise expectations for upcoming policy decisions.

In a significant shift, major brokerages like Barclays, BNP Paribas, and Deutsche Bank now foresee a potential interest rate cut by the U.S. Federal Reserve in September. This follows Chair Jerome Powell's speech at Jackson Hole, where he emphasized growing concerns about labor market risks.

Powell highlighted the rising downside risks to employment, which include potential layoffs and a surge in unemployment. In response, Barclays adjusted its forecast for a rate cut, pulling it forward by a year, while Macquarie and Deutsche Bank anticipate a 25-basis-point cut in the near term.

While the market largely aligns with this view, with an 87% probability predicted for a September rate cut, institutions like Morgan Stanley remain cautious, noting the necessity for further supportive labor and inflation data.