Morgan Stanley (MS) has switched gears and now expects the Federal Reserve to cut rates in September. The bank sees a 25-basis-point cut next month and another before the end of the year. That is a sharp change from its earlier view that the Fed would hold steady until 2026.
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The change came right after Powell’s Jackson Hole speech, where he leaned more on signs of labor market weakness than on inflation. For Morgan Stanley, that was the signal the Fed is ready to ease sooner rather than later.
Wall Street Lines Up with the Outlook
Morgan Stanley is not standing alone. Other global banks including Barclays (BCS), BNP Paribas (BNPQY), and Deutsche Bank (DB) have also moved into the September cut camp. Their forecasts now call for easing this fall, with another round in December.
That swing in consensus has reset expectations across markets. Futures now price in better than an 80 percent chance of a September move. The question is less about if the Fed will cut and more about how deep and how fast.
Markets React to the Tone Change
Investors wasted no time adjusting. Stocks bounced back after a choppy week, while Treasury yields pulled lower as the curve flattened. Growth and tech names caught a bid again on hopes that cheaper borrowing is back on the table.
Still, analysts warn that this is not a one-way bet. If the Fed cuts too quickly and the data turns stubborn, Powell may have to slow down. That is why Morgan Stanley says this easing cycle will be measured rather than aggressive.
Data Still Holds the Key
Even with all the excitement, Powell’s speech stopped short of a firm commitment. The upcoming jobs, wages, and inflation numbers will decide if the Fed follows through in September.
If labor data weakens again, the case for a cut will be strong. If inflation refuses to budge, the Fed could hold steady and wait. For traders, that makes the next few weeks critical in deciding whether September delivers on the market’s expectations.
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