Morgan Stanley Predicts Fed Rate Cuts Launching in September - Here’s What It Means for Crypto
Wall Street giant Morgan Stanley just dropped a bombshell prediction: Federal Reserve rate cuts are coming in September.
### The Liquidity Floodgates Prepare to Open
Traditional finance might be sweating over basis points, but crypto traders know what rate cuts really mean—cheap money hunting for yield. When institutional capital can't find returns in bonds, it flows toward risk assets. And right now, nothing screams 'asymmetric upside' quite like digital assets.
### Why Crypto Stands to Benefit Most
Rate cuts don't just lower borrowing costs—they vaporize the opportunity cost of holding zero-yield assets. Bitcoin becomes more attractive than treasury bonds. DeFi yields suddenly look downright generous compared to traditional savings accounts. The entire crypto ecosystem feeds on liquidity injections, and the Fed might be about to serve a banquet.
### The Ironic Twist in Traditional Finance
Here's the beautiful irony: the same institutions that spent years dismissing crypto now need digital assets to absorb the liquidity they're begging the Fed to provide. They'll deny it publicly while quietly accumulating positions—because in today's market, you either embrace volatility or get left behind with negative real returns.
September can't come soon enough for risk-on assets. The Fed might be cutting rates to save traditional markets, but they'll accidentally fuel the very crypto revolution they've been trying to ignore.
Outlook for rate cuts
According to Morgan Stanley analysts, Powell has shown increased concern about labor market risks and signaled a tilt toward rate cuts for risk management.
The bank projects a 25 basis point cut in September, followed by another 25 basis point reduction in December.
Gradual easing through 2026
Morgan Stanley expects the Federal Open Market Committee to continue with quarterly cuts of 25 basis points, reaching a terminal rate of 2.75-3.0% by the end of 2026.
This revised forecast contrasts with the prior expectation that the Fed WOULD hold rates steady until March 2026 before reducing the policy rate to a range of 2.50-2.75% by year-end.
Uncertainty remains
Despite the new outlook, the firm cautions that a September rate cut is not guaranteed.
The analysts noted that strong payroll data in August or a renewed uptick in tariff-related inflation could prompt the Fed to delay action.
A larger initial cut would likely require significant payroll declines, and there may be dissents at the upcoming meeting.
Policy approach and labor market focus
Morgan Stanley stated:
“The net effect of our change in the Fed’s policy path is fairly minor. We project the Fed to cut sooner, but finish its cutting cycle about where we had forecasted previously. On net, we have 25bp fewer rate cuts now than before. A Fed that cuts sooner may cut less.”
The note also highlights a change in the Fed’s approach, with policymakers placing more emphasis on downside labor market risks, even as inflation is expected to remain above the 2% target into year-end.
