Wall Street Revises Fed Rate Cut Expectations Amid Labor Market Concerns

Major financial institutions have significantly revised their Federal Reserve rate cut projections, with consensus now pointing to three reductions between September and November. Kalshi data shows a 99% probability of a 25 basis point cut at the September 17 meeting, while odds for a more aggressive 50 basis point MOVE have risen from zero to 12% in just 24 hours.

Morgan Stanley suggests the economic landscape now favors 75 basis points of cuts by year-end, with Oxford Economics bringing forward its projected rate cut timeline from December to September. The most striking reversal comes from Bank of America, which abandoned its previous forecast of no cuts until 2026 in favor of expecting reductions in both September and December.

Bank of America's Aditya Bhave cites deteriorating labor demand as the key catalyst, noting Core PCE inflation may reach 3% by August before trending upward. The bank's updated forecast includes five additional quarter-point cuts through 2026, potentially lowering the Fed's target rate to 3%-3.25% from the current 4.25%-4.5% range.