Nomura adds October Fed cut forecast after widely expected policy easing

Nomura now expects the Federal Reserve to deliver 25-basis-point interest rate cuts at each of its remaining two meetings this year, following the U.S. central bank's widely anticipated quarter-point reduction and hints at continued policy easing.

The Japanese brokerage had previously forecast a pause in October and a cut in December.The Fed, facing signs of U.S. labor market weakness and rising unemployment, cut interest rates for the first time since December on Wednesday, aligning in a direction called for by President Donald Trump.Fed Chair Jerome Powell, speaking in a press conference after two-day monetary policy meeting, indicated that more cuts would follow at meetings in October and December, emphasizing that the softening job market was now top of the mind for him and his fellow policymakers."Despite the dovish revision to the expected rate path, economic projections were surprisingly hawkish. This suggests a low threshold for delivering additional... cuts in the near term, and less vigilance on inflation risks," analysts at Nomura said in a note on Wednesday.

New economic projections released by the Fed showed policymakers still expect inflation to end the year at 3 per cent, unchanged from the forecasts in June and above the 2 per cent target, while unemployment is seen holding steady at 4.5 per cent and economic growth nudging up to 1.6 per cent from 1.4 per cent.Nomura further expects quarter-point reductions each in March, June, and September in 2026, pointing to the Fed's waning emphasis on inflation and the likelihood of a leadership transition.Meanwhile, most major Wall Street brokerages, including Goldman Sachs and Citigroup, continue to expect rate cuts at both the upcoming Fed meetings for 2025.

Bank of America, which does not expect a rate cut at the Fed's next meeting, said that "risks have risen" for the next cut to be pulled forward to October.