StanChart expects Fed to cut rates by 50 bps next week after weak jobs data

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By Rashika Singh and Joel Jose

(Reuters) – Standard Chartered expects the U.S. Federal Reserve to cut interest rates by 50 basis points at its policy meeting this month, double its earlier projection of a 25-bp reduction, following a soft August jobs report.

Data on Friday showed U.S. job growth weakened sharply in August and the unemployment rate rose to a near four-year high of 4.3%, confirming a softening labor market and bolstering the case for a rate cut this month.In a client note on Friday, the brokerage said that the labor market had shifted “from solid to soft in less than six weeks.”

“August labor market data has paved the way for a ‘catch-up’ 50 basis point rate cut at the September FOMC meeting, similar to what occurred at this time last year.”

After a 50-bps cut the market could take time to price in a slower subsequent pace of cuts, the brokerage added.

Meanwhile, Morgan Stanley and Deutsche Bank do not consider the August jobs report weak enough to warrant a 50-bps rate cut in September, though they noted it could pave the way for reductions at consecutive meetings.Last month, Fed Chair Jerome Powell signaled a rate cut was possible at the September 16-17 policy meeting, citing rising labor market risks, while cautioning that inflation remained a threat.

Barclays revised its forecast on Friday to include 25 bps reductions at each of the remaining meetings this year, while Macquarie brought forward its expected December cut to October.

Bank of America also revised its outlook, now expecting 25 bps cuts each in September and December, after previously forecasting no cuts this year.

Markets are pricing in a 90% chance of a 25-bps rate cut next week and a 10% probability of a larger 50-bps reduction, according to the CME FedWatch Tool.

(Reporting by Rashika Singh and Joel Jose in Bengaluru; Editing by Janane Venkatraman and Eileen Soreng)