Morgan Stanley's Hawkish Turn on Rate Hikes

Morgan Stanley has adopted a more hawkish stance on interest rates, predicting U.S. Federal Reserve rate hikes and another European Central Bank increase amid continued inflationary pressures. This comes ahead of decisions from the U.S. Fed and the Bank of Japan while financial markets anticipate further tightening.

Morgan Stanley joined other leading Wall Street firms in predicting more aggressive interest rate hikes by the U.S. Federal Reserve and European Central Bank due to inflation. This outlook comes as global markets brace for policy decisions from both the U.S. Fed and the Bank of Japan.

Morgan Stanley anticipates the Fed to increase interest rates by 25 basis points during its September 15-16 meeting and to implement another quarter-point increase in December. Recent inflation surges have driven Morgan Stanley to adjust its forecasts, suggesting the disinflation process has been slower than expected, necessitating two rate hikes in 2023.

The brokerage modified its European Central Bank outlook, projecting an additional 25-basis-point hike by December, raising the deposit rate to 2.75%. Contributing factors include strong eurozone growth and persistent energy prices, which support the need for a more restrictive monetary policy environment.