Morgan Stanley has revised its forecast for the timing of Federal Reserve interest rate reductions, now anticipating the first cut in September rather than June. The adjustment comes after the March FOMC meeting, where Fed officials emphasized the need for clearer signs of declining inflation, increasing uncertainty for investors.
In a recent communication to clients, Morgan Stanley said the Federal Reserve’s more guarded tone following its March meeting prompted the bank to move its expectations for interest rate cuts to September and December, from its previous forecast of reductions in June and September. The firm pointed to ongoing inflation pressures, citing elevated oil prices and heightened geopolitical tensions as factors adding complexity to the central bank’s decision-making.
Chair Jerome Powell, according to Morgan Stanley, delivered a message that addressed both the need to manage persistent inflation and concerns over the strength of the labor market. The bank described this as a balanced stance, indicating that the policy path remains data-dependent.
Morgan Stanley warned that greater volatility may occur in financial markets as investors react to shifting interest rate expectations. It also noted that a key risk is the possibility of further delays in policy easing—or no rate cuts at all—if economic conditions do not deteriorate meaningfully.
Other major institutions including Goldman Sachs and Barclays have also revised their forecasts, now expecting the first rate cut to take place in September. Their adjustments follow increased inflation anxieties, driven in part by rising energy costs related to ongoing conflict in the Middle East.
