Morgan Stanley Revises Forecast: Fed Rate Cuts Expected in December

Morgan Stanley, along with J.P.Morgan and BofA Global Research, now anticipates the U.S. Fed to cut interest rates by a quarter-point in December, spurred by dovish remarks from officials. Further cuts are projected for early next year based on economic data and evolving monetary policy signals.

On Friday, Morgan Stanley announced a revision in its forecast, now anticipating the U.S. Federal Reserve to implement a quarter-point rate cut in December. This decision aligns with predictions from J.P.Morgan and BofA Global Research, influenced by recent dovish statements from Fed policymakers.

Initially, all three firms expected the Fed to maintain rates in December. However, softer economic data late in November and comments from key Fed figures like New York Fed President John Williams and Fed Governor Christopher Waller have shifted expectations towards a rate reduction.

Morgan Stanley strategists acknowledged a premature forecast, noting possible dissentions, and suggested Chair Powell might leverage the cut for more stringent language signaling future cuts will require significant justification. Current surveys like the CME FedWatch Tool suggest an 87.2% likelihood of a rate cut at the upcoming December meeting.

(With inputs from agencies.)