Morgan Stanley Predicts Fed's Interest Rate Cuts
Morgan Stanley joins a wave of global brokerages predicting imminent interest rate cuts by the U.S. Federal Reserve, following Chair Jerome Powell's labor market concerns voiced at the Jackson Hole symposium. Economists now expect a September rate cut, with subsequent adjustments, shifting from earlier stances on the Fed's policy.
Morgan Stanley has aligned with a burgeoning group of worldwide brokerages forecasting a September interest rate reduction by the U.S. Federal Reserve. This comes as Federal Reserve Chair Jerome Powell shifted focus towards labor market risks at the Jackson Hole symposium.
The brokerage, in a recent note, underscored Powell's shift from prioritizing inflation and low unemployment towards preemptively managing labor market threats. Morgan Stanley predicts two 25-basis-point cuts this year, in September and December, followed by consistent reductions through 2026 to stabilize the rate at 2.75%-3.0%.
Powell's address spurred a flurry of forecast revisions across brokerages like Barclays and Deutsche Bank, who now also foresee a September cut. This reflects an altered 'reaction function' in the Fed, as Powell appears increasingly responsive to labor market changes. Meanwhile, President Trump intensifies pressure for aggressive rate cuts amid boardroom changes, potentially shifting the FOMC's dynamics.
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