Fed rate cuts to help spark broader market opportunities in 2025

Investing.com — Wells Fargo analysts believe that the recent rate cut by the Federal Reserve is just the beginning of a series of reductions that could fuel broader market opportunities in 2025.

In a note to clients this week, the bank emphasized that the focus should not be on the size of the cut but on the longer-term trajectory of rates.

Last week’s 50 basis point (bps) cut by the Fed surprised many investors, though the fed funds futures market had priced in a 58% probability of such a move.

“The important concept to latch onto over the past two months was not the ultimate size of the first cut but that the September policy meeting represented the first in what is likely to be a series of Fed rate reductions expected to last well into next year,” wrote the bank.

Wells Fargo anticipates that these reductions will provide crucial support to economic growth and labor markets.

Federal Reserve Bank of Chicago President Austan Goolsbee further bolstered this view by stating that many more rate cuts will likely be needed to support the economy.

“We do believe our central bankers will cut 25 bps at both of the remaining FOMC meetings this year (November and December) for a total of 100 bps of cuts in 2024,” adds Wells Fargo.

However, they caution that the timing on the 2025 cuts remains uncertain.

While the U.S. economy is expected to slow toward the end of 2024, Wells Fargo does not foresee a recession.

Instead, the bank anticipates a moderate economic slowdown before rate cuts begin to positively impact growth. By the first and second quarters of 2025, Wells Fargo expects the domestic economy to respond to the easing cycle, which will also benefit S&P 500 earnings, as about 35% of revenues in the index come from international markets.

Wells Fargo concludes: “Last week’s Fed rate cut is just the beginning in what is likely to be a series of rate reductions that should help spark broader opportunities next year.”