A Repeat of Last Year? Wall Street Prepares: Will the Fed Slash Rates by 50bps in September?
Shortly after the Fed held rates steady last week, Friday’s unexpectedly weak July nonfarm payrolls revealed the U.S. labor market is cooling at a startling pace—not only missing forecasts but also revising down prior months’ job gains by nearly 260k. This has severely challenged the Fed’s wait-and-see stance and drawn external skepticism.
Interest rate markets now fully price in at least 75bps of Fed cuts by January—implying up to three 25bp cuts over the next four FOMC meetings. But could more aggressive moves emerge—like a 50bp cut as early as September, mirroring last year’s approach?
This week, some Wall Street firms appear to have added this ultra-dovish scenario to their playbooks…
Goldman Sachs’ trading and research teams argue markets underestimate the odds of a 50bp September cut. Anshul Sehgal, co-head of FICC trading, noted in a weekend macro call that jobs data marked a pivotal inflection point…
Sehgal highlighted three-month job additions hitting cycle lows—especially in private sectors—while combining with H1 final sales data shows clear consumer strain. Annualized GDP growth has dropped 1ppt this year alongside gradually rising unemployment.
"Did other FOMC members regret not cutting Wednesday? I’m sure some did…At this stage, one must assume September’s debate will center on 25bp vs 50bp regardless of upcoming growth data—same for December. This discussion will persist for months," Sehgal stated.
BlackRock’s Rick Rieder viewed July’s weak payrolls as providing the evidence needed for a September cut—leaving only the magnitude in question.
Nomura, historically bold on Fed calls, doubled its "two cuts by December" odds post-payrolls. Crucially, hedging demand for ≥4 cuts (25bp each) this year resurged given repriced hard-landing risks.
However, Timiraos noted a key difference: last year’s disinflation trend contrasts with 2024’s tariff-driven inflation concerns. Thus, the Fed’s dilemma—whether the slowdown reflects genuine deterioration or merely policy lag effects—remains unresolved.
