Many investment banks expect the Federal Reserve to cut interest rates in September, with Morgan Stanley and Bank of America still remaining cautious.

Large investment banks, including Barclays, BNP Paribas, and Deutsche Bank, now expect the Federal Reserve to cut interest rates by 25 basis points in September. Prior to this, at the Jackson Hole symposium, Federal Reserve Chairman Powell changed his tone and discussed the increasing risks in the labor market. Powell's speech at the Jackson Hole symposium emphasized the changes in the Federal Reserve's response mechanism, now placing more emphasis on risks in the labor market. Powell stated, "This unusual situation indicates that the downside risks to employment are rising." He warned that these risks could quickly manifest in the form of layoffs and a soaring unemployment rate. In a report released last Friday following Powell's speech, Barclays brought forward their previous expected rate cut from September 2026 to September 2025, stating that Powell's speech introduced a "dovish bias" and raised the threshold for not cutting rates. A team led by economist Calvin Tse at BNP Paribas wrote, "Powell made it clear that the Fed intends to 'fine tune' a rate cut in September, unless data suggests otherwise." They changed their long-standing assertion that the Fed would remain on hold and instead predicted rate cuts in September and December. Meanwhile, Morgan Stanley and Deutsche Bank both revised their expectations, expecting the Fed to cut rates by 25 basis points in September and December, respectively. Morgan Stanley and Bank of America are the only two major Wall Street firms that have not yet predicted a rate cut by the Fed in September. Morgan Stanley stated that if upcoming labor and inflation data confirm further economic weakness, the Fed is likely to cut rates in September. According to the Chicago Mercantile Exchange (CME) FedWatch tool, the market currently predicts an 87% probability of a 25 basis point rate cut at the September policy meeting, up from 75% before Powell's speech. The Federal Open Market Committee (FOMC), which is responsible for setting interest rates, is scheduled to meet again on September 16th and 17th. Meanwhile, Goldman Sachs and JPMorgan reiterated their expectations for a rate cut by the Fed in September, in line with the broader market view that weak data may prove that a loose monetary policy is appropriate.