Forecasts Flip: Wall Street Finally Backs September Fed Cuts

Source Credit : Portfolio Prints

A Rare Pivot on the Street

In a significant reversal, two of the most hawkish players on Wall Street— Morgan Stanley and BNP Paribas—announced they now expect the Federal Reserve to begin cutting interest rates as soon as September 2025. Both firms had previously maintained a refusal to predict any rate cuts this year. Their capitulation marks the end of a summer characterized by widespread policy skepticism.

What Sparked the Sharp Shift?

The turning point came with Federal Reserve Chair Jerome Powell’s address at the Jackson Hole symposium, where he acknowledged rising downside risks to the labor market—particularly slipping supply and demand for workers—even as inflation concerns persist. This more dovish tone prompted a wave of forecast updates across major institutions.

Following this, Barclays, BNP Paribas, and Deutsche Bank also joined the newly dovish consensus, projecting a 25-basis-point cut in September—with further easing expected in December. Meanwhile, Morgan Stanley now envisions sustained cuts into 2026, reducing the federal funds rate to a range of 2.75%–3.00%.

Market Sentiment Reflects the Shift

The markets quickly priced in this pivot— CME’s FedWatch tool now shows around an 87% chance of a September rate cut, up sharply from earlier levels. institutional sentiment on futures also flipped strongly to reflect this heightened probability.

Broader Market Response

Optimism has swept across financial markets. Wall Street rallied, with major indices nearing or reaching record highs. Analysts attribute this surge to renewed confidence in easing monetary policy.

Why the Flip Matters

• Federal Reserve Strategy: Powell’s shifting tone signals a potential reorientation of priorities—from a primary focus on inflation to a more balanced emphasis that includes labor-market fragility.


• Wall Street Alignment: With Morgan Stanley and BNP now in the dovish camp, only a few holdouts—like Bank of America—continue to resist a September cut forecast.


• Investor Sentiment Shift: This collective flip may rekindle a rally in equities and set the stage for renewed interest in sectors sensitive to rate changes—especially small caps.

What Could Still Go Wrong?

Despite the newfound consensus, analysts caution that strong inflation data or surprising job gains could derail the September easing. Internal Federal Reserve dissent remains possible.

Summary Table

Institution	Prior Forecast	New Forecast
Morgan Stanley	No cuts in 2025	Cuts starting September, then into 2026 (to 2.75–3.00%)
BNP Paribas	No short-term cuts	Cuts in September and December
Barclays & Deutsche Bank	Long hold-out stance	Now expect 25 bp cuts in September and maybe December

Wall Street’s shift signals a broader anticipation that the Fed may finally be shifting from pause to pivot—but the coming jobs and inflation reports will likely determine just how bold that move is.