Morgan Stanley has revised its forecasts for U.S. interest rates, anticipating cuts in 2025. This decision is due to a shift in the rhetoric from Fed Chairman Jerome Powell.
Forecast Changes Post Jackson Hole Symposium
The change in forecast follows Fed Chair Jerome Powell's remarks at the Jackson Hole symposium, where he highlighted labor market risks rather than inflation risks.
> Morgan Stanley noted that Powell's 'tone marked a departure from his earlier emphasis on inflation persistence and low unemployment, suggesting the Fed may move preemptively to manage downside risks to the labor market.'
Consensus Among Banks
Morgan Stanley is not alone in its expectations. Barclays, BNP Paribas, and Deutsche Bank also anticipate a 25 basis point cut next month. ING has taken a more aggressive stance, projecting additional 25 basis point cuts in September, October, and December 2025, followed by a larger 50 basis point cut in 2026.
Political Pressure and Its Impact on the Fed's Decisions
The outlook is also shaped by political pressure. President Trump expressed plans to remove Fed Governor Lisa Cook over alleged mortgage fraud, which could lead to vacancies at the central bank and shift the balance of power within the FOMC. Morgan Stanley remains cautious, assigning only a 50% probability for a September cut as it weighs ongoing inflation risks and political pressures.
The upcoming FOMC meeting on September 16-17 is anticipated as one of the year's most significant events. A potential pivot towards easier monetary policy could impact markets, including cryptocurrencies.
