Morgan Stanley predicts that the Fed will accelerate its pace of interest rate cuts, achieving four consecutive cuts from September to January of next year.

The latest forecast from Morgan Stanley's team of economists shows that the Federal Reserve will implement interest rate cuts at the next four consecutive meetings before January next year. This judgment is based on continued slowing inflation and a softening labor market, providing the central bank with space to accelerate its easing measures. The market generally expects the Federal Reserve to complete its first rate cut at the meeting next week, with traders already betting on further rate cuts at the October and December meetings. While market pricing shows that most investors believe the Federal Reserve will pause its rate cuts after December, with the first rate cut in 2026 expected to begin in April, Morgan Stanley proposes a different path - predicting that borrowing costs will continue to decline in September, October, December, and January next year, eventually reaching a upper limit of 3.5% for the target interest rate. Economists like Michael Gapen emphasized in the report that weakening inflation and a soft employment situation have created "more room for faster action" for the Federal Reserve to shift to a neutral policy stance, pointing out that due to the weak employment situation, the Federal Reserve will strive to more decisively achieve its neutral interest rate target. The team further predicts that after January, the Federal Reserve will temporarily hold off and first observe the usual upward 'noise' in inflation in the first quarter. They wrote: "Once this noise dissipates, we expect that as the labor market continues to deteriorate, the Federal Reserve will further cut rates in April and July." It is worth noting that although the current forecast for the speed of rate cuts has significantly accelerated from the previous version of "25 basis points each quarter from September this year until the end of 2026, with rates falling below 3%," Morgan Stanley still maintains its forecast for the final level of interest rates unchanged. Regarding whether there should be a further 50 basis point rate cut this month, economists at Morgan Stanley are opposed, citing the relatively low unemployment rate and the federal funds rate being closer to a neutral level after a 1 percentage point cut last year, indicating that more aggressive measures are not necessary.