Wall Street investment bank Morgan Stanley (MS) has revised its outlook for interest rates, saying it now expects the U.S. Federal Reserve to deliver two cuts this year and four more in 2026.
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In revising its forecast for lower interest rates, Morgan Stanley analysts cite growing concerns about labor market weakness. “We alter our outlook for monetary policy in favor of 50bp in rate cuts this year and 100bp in 2026 for a terminal target range of 2.75–3.0%,” writes Morgan Stanley in a note to clients.
The bank adds that “The Fed sees downside risk to labor markets as warranting less monetary restriction. Activity data suggest the economy has cooled, but remains resilient.” The change in outlook from Morgan Stanley comes a week after Fed Chair Jerome Powell indicated that lower rates are likely in coming months.
Weak Job Market
During his most recent remarks, Powell highlighted softness in recent employment reports as a reason for interest rates to potentially move lower. July’s jobs data were weak, with 258,000 in downward revisions to prior months, raising alarms in financial markets.
Morgan Stanley says it now expects the U.S. central bank to lower interest rates by 25 basis points in September and December of this year, followed by four additional 25 basis point cuts in March, June, September and December 2026. Previously, the investment bank didn’t expect the Fed to start lowering interest rates until next year.
Is MS Stock a Buy?
The stock of Morgan Stanley has a consensus Moderate Buy rating among 13 Wall Street analysts. That rating is based on six Buy and seven Hold recommendations issued in the last three months. The average MS price target of $148.09 implies 1.36% downside from current levels.
