The Fed's November rate decision has just come to an end, and the "soft-hearted" FOMC Committee continues to press the pause button this month, keeping the policy rate at 5.5% upper limit。

If, in accordance with the previously announced policy path, in principle, the Fed will also raise interest rates once during the year, which means that the bank will resume raising interest rates by 25 basis points at its December 13 meeting.。

However, in terms of the pricing of the underlying exchange contracts, the market is betting that the probability of the Fed keeping interest rates unchanged in December is as high as 90.9%, while the probability of a 25 basis point rate hike is only 9.1%, contrary to the Fed's path planning。

Right now, because of the disagreement between the Fed and the markets, Wall Street institutions are also arguing over the Fed's interest rate decision in December。

Damo: Fed to cut interest rates sharply

"Optimists," led by Morgan Stanley, say the Fed will cut interest rates sharply over the next two years as inflation cools。

Yesterday, a research team led by Ellen Zentner, chief U.S. economist at Morgan Stanley, released its economic research outlook for 2024.。According to the Outlook, Damo's research team expects the Fed to start cutting rates in June 2024 and at every meeting after September and the fourth quarter, by 25 basis points each.。The team says the Fed's policy rate will fall to 2 by the end of 2025..375%。

The research team believes that the current economic weakness in the United States, even if there is no possibility of a recession in the short term, but also need to take a more substantial easing policy, the Fed is expected to begin in September next year to phase out quantitative tightening policy, until the beginning of 2025 completely over。

Damore also believes that the unemployment rate in the United States will reach 4 in 2025..3% peak, which is 0% higher than the Fed's official forecast..2 percentage points。The drag on the U.S. economy from the current prolonged period of high U.S. interest rates will not only offset the positive stimulus from fiscal policy, but will also cause U.S. economic growth to remain below potential from the third quarter of 2024.。

Goldman Sachs: Fed rate cut late, small

The "pessimists," led by Goldman Sachs, said the Fed was expected to cut interest rates later and to a lesser extent as inflation remained stubborn.。

Also yesterday, Goldman Sachs economist David Mericle released a research report, the Fed is expected to cut interest rates for the first time in the fourth quarter of 2024 by only 25 basis points, followed by a quarterly rate cut until mid-2026, with a total rate cut of 175 basis points, setting the interest rate target at 3.5% to 3.75% of the range。

David Mericle said that with the neutral rate now at a relatively high level, the Fed is expected to be inclined to maintain relatively high rates for two reasons。First, the negative impact of the financial crisis has gradually passed, the downward centrifugal force of the U.S. economy has been greatly weakened;。

David Mericle also said that there are now two factions within the Fed, one that believes that there is no reason for the Fed to keep policy rates high as inflation fades away, and the other that the U.S. economy is already strong and resilient, and that there is really no reason for the Fed to cut interest rates to stimulate the economy.。David Mericle points out that the forecast rates he gives essentially reflect a compromise between these two factions within the Fed。

For now, Goldman Sachs' forecast is closer to the Fed's expectations。According to the median estimate given by the Fed in its September rate decision, the Fed will cut interest rates twice next year by 25 basis points each, bringing the policy rate to 3 by the end of 2025..9%。It is worth noting that the Fed will update the median estimate of the benchmark interest rate in its interest rate decision next month。