Morgan Stanley has issued a forecast indicating that the Fed will begin cutting interest rates in March 2026, with seven cuts anticipated throughout the year.
Morgan Stanley's Forecast
Morgan Stanley expects the Fed to commence interest rate cuts in 2026 starting in March, targeting a range of 2.5–2.75% by the end of the year. This signals a potential shift in current monetary policy.
Factors Behind the Forecast
The bank cites several factors that may contribute to the rate cuts:
* Ongoing tariff-related inflation pressures that may persist in the short term. * A broader economic slowdown, with easing inflation providing the Fed room to adjust. * The need to restore neutral monetary conditions, aiming for a 2.5–2.75% target.
Market Reaction and Investor Outlook
The expectation of multiple rate cuts may significantly impact financial markets:
* Stock markets may benefit from improved investor sentiment and stronger corporate earnings, particularly in interest-sensitive sectors. * Cryptocurrencies often perform well in low-rate environments as reduced yields on traditional assets drive investors towards riskier options like Bitcoin and altcoins. * A weaker US dollar and lower bond yields could follow, creating additional tailwinds for global and risk assets.
If this forecast materializes, 2026 could be a pivotal year for markets transitioning towards a growth-friendly low-rate environment.
