Standard Chartered Predicts Bigger Rate Cut from Federal Reserve

BENGALURU, India — Standard Chartered predicts the U.S. Federal Reserve will reduce interest rates by 50 basis points at its policy meeting this month. This expectation is double the bank’s earlier projection of a 25-basis-point cut, spurred by a disappointing jobs report in August.

Data released on Friday showed significant weakness in job growth for August, with the unemployment rate rising to 4.3%, the highest in almost four years. This shift confirms a deteriorating labor market, supporting the case for a more substantial rate cut this month.

In a note to clients, Standard Chartered noted that the labor market “shifted from solid to soft in less than six weeks.” They added that the August data creates a favorable environment for a ‘catch-up’ rate cut at the September Federal Open Market Committee meeting, akin to actions taken last year.

However, other financial institutions have varied opinions on the report. Morgan Stanley and Deutsche Bank do not see the August numbers as weak enough to justify a 50-basis-point cut in September. They indicated that while the figures could lead to reductions at future meetings, the current data does not fully support such a drastic move.

Federal Reserve Chair Jerome Powell previously suggested that a rate cut was a possibility during the September 16-17 policy meeting due to growing labor market risks, but also warned that inflation remains a concern.

Barclays revised its forecast to project a 25-basis-point reduction at each remaining meeting this year. In contrast, Macquarie has moved its anticipated December cut forward to October. Bank of America now expects two 25-basis-point cuts in September and December, while initially forecasting no cuts this year.

Market predictions now indicate a 90% chance of a 25-basis-point cut next week, with only a 10% likelihood of a larger 50-basis-point reduction, according to the CME FedWatch Tool.