Morgan Stanley changes its mind about the Fed's next steps: "We now expect four cuts."

Morgan Stanley has changed its outlook for the Fed . According to Bloomberg, the latest US macroeconomic data has led the American bank to change its mind, now saying it expects a faster pace of rate cuts.

According to Morgan Stanley economists, this week's inflation is reflected in a softer Consumer Expenditures (PCE) Price Index , which, combined with the downward surprise in the August jobs report, suggests the Federal Reserve may move faster with its rate cuts. Morgan Stanley now estimates four consecutive interest rate cuts .

"We now project four consecutive 25-basis-point rate cuts in September, October, December, and January, putting the target range at roughly 3.375% , the upper end of most Fed estimates of neutrality based on long-run benchmarks," the bank's analysts said.

After this round of four rate cuts, they estimate the Fed will pause. "After these four rate cuts, we expect the Fed to pause and assess incoming data to gauge its proximity to a plateau." However, they do not believe a 50-basis-point rate cut will occur this coming Wednesday, the date of the next meeting, highlighting the relatively low unemployment rate.

Furthermore, the bank's remaining seasonality in inflation during the first quarter of next year could, in its view, prompt a temporary suspension. "Once this uncertainty dissipates, we anticipate further rate cuts in April and July as the labor market deteriorates further," the bank's strategists stated.

Morgan Stanley also maintains its terminal rate forecast at 2.875% , although earlier They forecast cuts of 25 basis points at a quarterly pace from this month to December 2026 , reaching a terminal rate of 2.875%.

Instead, they oppose cuts of 75 basis points by the end of the year , according to Bloomberg, followed by a pause. In their words, "While it's certainly possible, we believe the Fed will pursue neutrality more aggressively ."

Morgan Stanley has changed its outlook for the Fed . According to Bloomberg, the latest US macroeconomic data has led the American bank to change its mind, now saying it expects a faster pace of rate cuts.