Morgan Stanley predicts that the Federal Reserve will cut interest rates by 0.25% in each of the next four meetings.

Morgan Stanley's analysis team predicts that the Federal Reserve will reduce interest rates by 0.25% at each of the next 4 upcoming meetings, bringing the federal funds rate range down to 3.625% by May of next year. Morgan Stanley believes that a decrease in immigration and increased tariffs will lead to a slowdown in the US economy and persistent inflationary pressures, along with a cooling job market, pushing the Federal Reserve to slow down its rate-cutting pace. Morgan Stanley estimates that US inflation will gradually decline through 2025, but will still be above the 2% target by 2026, with the average core consumer price index expected to be 2.8% this year, 2.5% in 2025, and 2.4% in 2026. Morgan Stanley anticipates that US GDP will grow by 2.4% year-on-year this year, dropping to 1.9% in 2025, and further decreasing to 1.3% in 2026. Morgan Stanley suggests three possible scenarios for the US economy in 2025, including the possibility of a hard landing, such as: the Federal Reserve's rate being overly tightened leading to a contraction in GDP; rate cuts stimulating economic growth. Morgan Stanley predicts that the Federal Reserve will pause rate cuts in the second half of 2026. Regarding the US unemployment rate, Morgan Stanley estimates that it will gradually rise from the current 4.1% to 4.5% by the end of 2026.