Wells Fargo Analysts See Fed Rate Cut as Start of Broader Market Opportunities in 2025

Wells Fargo analysts believe that the recent rate cut by the Federal Reserve is the beginning of multiple reductions aimed at fueling market growth opportunities in 2025. The bank advises focusing on the long-term trajectory of rates, not the size of individual cuts.

Last week’s 50 basis point (bps) rate cut caught some investors off guard, though the fed funds futures market had priced in a 58% chance. “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 Wells Fargo analysts.

Economic Support and Labor Market Growth

The bank anticipates that the expected series of rate reductions will support economic growth and labor markets. Federal Reserve Bank of Chicago President Austan Goolsbee supported this view, suggesting that further rate cuts will likely be needed to bolster the economy.

Wells Fargo projects that the Fed will reduce rates by 25 bps at both of the remaining Federal Open Market Committee (FOMC) meetings in 2024, totaling 100 bps of cuts by year-end. However, the bank notes that the timing of potential rate cuts in 2025 is still uncertain.

No Recession Anticipated, Moderate Slowdown Expected

While Wells Fargo expects a slowdown in the U.S. economy toward the end of 2024, they do not predict a recession. Instead, the bank foresees a moderate economic slowdown, followed by a positive impact from rate cuts. By the first and second quarters of 2025, Wells Fargo expects the domestic economy to benefit from the easing cycle, which could also enhance S&P 500 earnings, as about 35% of the index’s revenues come from international markets.

"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,” the bank concludes.