Morgan Stanley has adjusted its outlook for U.S. monetary policy, joining a growing roster of global banks now anticipating a Federal Reserve rate cut as early as September. The move comes after Federal Reserve Chair Jerome Powell’s remarks at Jackson Hole signaled a notable shift toward prioritizing risks in the labor market over earlier warnings about persistent inflation.
In a Monday note, the Wall Street firm cited Powell’s new tone as a departure from his sustained crackdown on price pressures, noting the Fed may now act preemptively to shield the economy from softer hiring conditions.
Morgan Stanley now projects two 25-basis-point reductions before year-end—one in September and another in December—followed by measured, quarterly rate cuts through 2026. This would ultimately bring the interest rate down to a range of 2.75%–3.0%.
The revised forecast stands in contrast to Morgan Stanley’s previous outlook, which had seen the Fed on hold until March 2026, before a more pronounced round of cuts.
The switch puts the brokerage in line with Barclays, BNP Paribas, and Deutsche Bank, all of whom have updated projections following Powell’s Friday speech. According to LSEG data, traders are now assigning nearly 82% odds to a September move.
Analysts interpret this collective recalibration as evidence of a broader transformation in the Fed’s “reaction function,” with economic leadership now appearing more attuned to employment slack than before.
A higher rate cut would likely come after a significant decrease in wages, Morgan Stanley said, cautioning possible dissenting votes within the Fed against lowering rates at the September meeting.
Complicating the picture, the Trump administration has ramped up its campaign for faster rate easing, most recently by moving to remove Fed Governor Lisa Cook over allegations of mortgage fraud. JP Morgan noted that such political interventions could create new vacancies on the Fed’s Board of Governors and disrupt internal dynamics.
Despite the surge in bets on Federal Open Market Committee (FOMC) rate cuts, BofA Global Research remains an outlier among major U.S. brokerages, still predicting no easing this year.
The Federal Reserve’s next policy meeting is scheduled for September 16-17.
