Wall Street is starting to give buyers regret for the Fed's jumbo rate cut

Analysts at Bank of America and JPMorgan, which were among the few banks that correctly predicted a half-point cut last month, have lowered their expectations for the November policy meeting, and now see a quarter-point cut instead of another 50 basis points.

But others on Wall Street warned that the situation called for more caution from the central bank because further easing could accelerate a still-strong economy, threatening to push up inflation again.

For example, senior market forecaster Ed Yardeni told Bloomberg on Friday that the previous half-point cut was unnecessary and that no more cuts are needed, adding that “I'm guessing a number of Fed officials regret doing so much.”

Ian Linzen, head of US rate strategy at BMO Capital Markets, said he still expected a quarter-point cut next month, warning that if the next jobs report and inflation data were too hot, the Fed would likely hold off. More easily.

“If anything, the employment update suggests the Fed may be reconsidering the discretion to cut in November—although a pause is not our base case,” he wrote in a note.

Lawrence Lindsey, a former Fed official who also served as director of the National Economic Council during the George W. Bush administration, told CNBC on Friday that policymakers need to consider how their rate cuts were followed by a jump in the 10-year Treasury yield, saying it could be a sign that they Something is wrong.

“So my suspicion is that they will probably pass in the next meeting,” he added.

He warned further rate cuts would validate expectations of sticky inflation based on demands for big wage increases from workers at Boeing and East Coast ports.

Indeed, top economist Mohamed El-Erian said “inflation is not dead” and the Fed must maintain vigilance on price stability and the job market rather than focusing exclusively on supporting full employment.

Similarly, former Treasury Secretary Larry Summers posted on X that nominal wage growth, the main driver of inflation, does not appear to be slowing and that the jobs report shows that any additional rate cuts require a cautious approach.

“With the benefit of hindsight, the 50 basis point cut in September was a mistake, albeit not a great one,” he wrote. “With this data, 'no landing' as well as 'hard landing' is a risk the @FederalReserve needs to consider.”

Torsten Slok, chief economist at Apollo, who has stuck to his view that rates will stay higher, said in a note on Saturday that more Fed cuts are not needed, citing a strong economy, low rate spending locked in by consumers ahead of the fiscal year, and AI-related business investment.

Even before the jobs report, other data suggested the Fed's rate cut last month was already having a significant impact.

For example, the Institute for Supply Management's service activity index for September came in stronger than expected.

“Businesses are already starting to see activity and orders rebound as the Fed takes its foot off the brakes,” Comerica Chief Economist Bill Adams said in a note Thursday.