Morgan Stanley Reverses Stance, Predicts Fed Rate Cuts Starting September

Morgan Stanley has abruptly shifted its interest rate forecast, now anticipating the Federal Reserve will implement two 25 basis point cuts in 2025—first in September, then December—with additional easing expected through 2026. This marks a stark reversal from its previous projection of no cuts this year.

The pivot follows Fed Chair Jerome Powell's nuanced Jackson Hole remarks, where he emphasized labor market vulnerabilities over inflation concerns. "Powell's tone signaled a strategic shift," analysts noted, suggesting preemptive action to mitigate employment risks may take priority.

Financial institutions are aligning with this outlook. Barclays, BNP Paribas, and Deutsche Bank all forecast a September cut, while ING projects three consecutive reductions starting next month. Market pricing reflects this consensus, with LSEG data showing an 81.9% probability of September easing.