Morgan Stanley Predicts Interest Rate Shuffle Amid Tariff Uncertainty

Morgan Stanley joins other banks in updating their 2023 interest rate cut forecasts, now anticipating one 25 bps reduction by the U.S. Federal Reserve due to President Donald Trump's tariff policies. Previously, two cuts were expected. Tariffs may elevate inflation, adding pressure on the Fed's decision-making.

Morgan Stanley has joined Barclays and Macquarie in revising their interest rate forecasts for this year, projecting a single 25 basis point cut by the U.S. Federal Reserve. This shift highlights the uncertainty surrounding President Donald Trump's tariff policies, which could drive inflation higher.

While Morgan Stanley had initially predicted two cuts in March and June, it now aligns more closely with peers like Goldman Sachs and Wells Fargo, which still anticipate two reductions. Elevated tariff risks might push inflation, complicating the Fed's efforts to maintain control.

The personal consumption expenditures price index met market expectations, but the Federal Reserve left its overnight rate unchanged. According to Fed Chair Jerome Powell, future rate decisions depend on the progress in tackling inflation, leaving the monetary policy path for 2025 uncertain.

(With inputs from agencies.)