With speculation of a recession to come many analysts have changed their rate cut expectations this year. Indeed, interest rate predictions are all over Wall Street in the wake of last week’s jobs report.

So, how many rate cuts should you expect for the rest of the year?

Well, depending on who you ask, the answer you receive may vary anywhere from just one 25-basis-point cut to three 50-basis-point cuts. While most economists agree the Federal Reserve will almost certainly begin lowering rates in September, where the buck stops remains less clear.

Per the CME Fed Watch Tool, interest rate traders are pricing in a 26.5% chance of a 25 BP hike in September and a 73.5% chance of a 50 BP hike. This is a fairly radical change from just weeks ago when traders priced a more than 80% chance for a 25 BP hike and a nearly 10% chance for no change in rates.

However, given the tumultuous state of the equity market lately and growing conjecture surrounding a possible recession, the situation has quickly come into focus. In the wake of the July jobs report, which showed the highest unemployment rate since 2021, many analysts believe the Fed may have slipped up by not cutting rates at the last policy meeting.

“It was a mistake that the Fed didn’t cut rates last week, but I don’t believe it will cause irreparable damage to the economy,” reckoned Invesco strategist Kristina Hooper. “This sell-off (in stocks) is a very emotional market reaction that is overestimating the potential for recession.”

Wall Street Is Abuzz With Interest Rate Predictions

As it stands, traders estimate the benchmark rate will end the year as low as 3.75% or as high as 4.75%, which reflects either a 150 BP rate reduction or a 75 BP reduction, respectively, from its current 5.25%-5.50% range. However, the most likely probability is that the terminal rate will end the year between 4.25% and 4.5%, reflecting a 100 BP rate cut. The CME estimates there’s a 45% chance of this outcome.

The Fed is notoriously late with its rate changes. Back in 2022, many economists felt the central bank needed to begin hiking rates far sooner following the end of Pandemic-era lockdowns as a means to avoid high inflation. As a result, the central bank embarked on a historically aggressive rate hike cycle as a means of playing catchup.

This time around it may well be a similar story, but in reverse. Because the Fed has yet to lower rates thus far, recession fears may force the central bank to begin cutting rates faster than previously anticipated to quell the masses.

“The Fed is as behind the economic curve now as it was behind the inflation curve back in 2021-2022,” wrote Economist and Strategist David Rosenberg, founder of Rosenberg Research.

Some believe the Fed may even consider making an emergency inter-meeting rate cut, considering the havoc in the markets lately.

“The unfortunate reality is that a range of data confirm what the rise in the unemployment rate is now prominently signaling — the US economy is at best at risk of falling into a recession and at worst already has,” Citigroup economist Andrew Hollenhorst wrote. “Data over the next month is likely to confirm the continued slowdown, keeping a [half-point] cut in September likely and a potential intermeeting cut on the table.”

Recession Fears Mount Following July Jobs Report

It’s been a quick turnaround for Wall Street since the release of July jobs data. Not for nothing, the report showed unemployment climbed to 4.3% last month, on just 118,000 new jobs. After the country managed to skirt a recession in 2023, Wall Street read the report as a sign the chickens have come home to roost, hence the influx of interest rate predictions.

Markets experienced a global selloff both last Friday and this past Monday due to concerns of a recession to come and the unwinding of the Japanese carry trade. After Japan raised rates for the second time this year, along with signs of a weakening dollar, the Japanese stock market fell 12.4% as traders rapidly exited their positions from fear of an impending margin call.

While the carry trade hasn’t yet winded down entirely, markets have since eased. Indeed, most major indices recorded strong gains on Tuesday, reversing some of Monday’s losses.

That said, economic data will remain key going forward. Currently, all eyes are on next week’s consumer price index (CPI) inflation reading, perhaps the Fed’s last major consideration before its rate cut decision in September.

On the date of publication, Shrey Dua did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.