Wall Street giants now expect 3 rate cuts from the Fed between September and November

Wall Street’s biggest players have flipped their rate cut bets after another weak jobs report hammered expectations. Morgan Stanley, Bank of America, and Oxford Economics now all expect the Fed to cut rates three times between September and November.

According to Kalshi, the probability of a 25 basis point cut at the September 17 meeting has jumped to 99%, while the odds of a more aggressive 50 basis point cut have climbed to 12%, up from zero just a day earlier.

Morgan Stanley said Friday’s report “tilts risks in the direction of 75 basis points in cuts by year-end.” Oxford Economics made its own adjustment, now projecting a rate cut in September rather than December.

But the surprising change came from Bank of America. Analysts there now expect 25 basis point cuts in both September and December, abandoning their earlier prediction of no cuts until 2026. Aditya Bhave, senior U.S. economist at the bank, explained that “there is now clearer evidence of deterioration in labor demand, not just supply.”

Bank of America now sees five more cuts into 2026

Aditya also said that inflation measured by the core PCE gauge could hit 3% in August and likely rise toward the end of the year. Despite that, the Fed is unlikely to hike in October.

The reasoning is simple; too many signs now point to a weaker hiring environment. In fact, Bank of America’s new forecast includes three more quarter-point cuts in 2026, starting in June, which would lower the Fed’s target rate to 3%-3.25%, down from the current 4.25%-4.5%.

This updated path now lines up with the broader view across Wall Street. Swap contracts that track the Fed’s next moves have already priced in not just a September cut, but also strong chances of cuts at the two other remaining meetings this year.

Until now, Bank of America was the only top-tier bank not on board with a September cut. That’s no longer the case. Markets didn’t waste time reacting.

The 10-year Treasury yield sank by 10 basis points to 4.076%, and gold hit a record high of $3,644.90 per ounce, rising 1% on the day. The reaction shows traders are treating the rate cuts as near-certain. There’s growing sentiment that the Fed may have to move quicker than expected.

Analysts brace for even faster cuts after jobs data disappointment

The jobs report released at 8:30 a.m. ET pushed expectations into overdrive. Ian Lyngen, head of U.S. rates strategy at BMO, said the report was “disappointing” and “will start the conversation about whether the FOMC should cut 50 bp on September 17.” While Ian still believes a 25 basis point cut is most likely, he warned that “next week’s benchmark revisions and CPI could shift the market’s perception.”

Art Hogan, chief market strategist at B. Riley Wealth, said the weak numbers “leave the door wide open for the Fed to cut rates at the September 17th meeting.” He pointed out that the current labor environment might require fewer job additions to keep unemployment flat. “Last year it was between 100,000 and 150,000,” Art said. “This year with limited emigration and retiring baby boomers it is likely closer to 50,000.”

Saira Malik, head of equities and fixed income at Nuveen, told CNBC that “this gives the Fed the greenlight to cut by 25 basis points,” and added that “it’s going to bring 50 basis points of rate cuts on the table for this September FOMC meeting and that’s why markets are positive.”

Joe Gaffoglio, CEO of Mutual of America Capital Management, noted that the August employment dip wasn’t surprising. He said the Bureau of Labor Statistics has repeatedly revised its job numbers downward in recent months. “The labor market continues to show fatigue as businesses hold back on hiring amid uncertainty around the direction of inflation, tariffs and the strength of the underlying economy,” Joe said.

Jeff Schulze, head of economic and market strategy at ClearBridge Investments, said the August payrolls report “did little to quell fears of a recessionary-esque labor backdrop.” Job creation is “at stall speed,” Jeff said, adding that “nothing in today’s report changes the outlook for a September rate cut.” He said the data supports “additional and faster rate cuts beyond September,” and warned that the QCEW revisions next week could further impact how much ground the FOMC lays for the rest of the year.

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