Morgan Stanley and Deutsche Bank both raised their expectations for interest rate cuts: The Federal Reserve may cut rates three times in a row in September, October, and December
Morgan Stanley and Deutsche Bank predict that the Federal Reserve will consecutively cut interest rates by 25 basis points in the meetings in September, October, and December, a significant upgrade from the previous expectation of rate cuts only in September and December. This adjustment is based on easing inflation pressures and signs of a slowing job market. The market generally expects the Federal Reserve to restart the easing cycle after December 2024, with Powell hinting that a rate cut may occur in the September meeting. Traders are betting on a 95% probability of a 25 basis point rate cut next week
According to the Zhitong Finance APP, the latest forecasts from Morgan Stanley and Deutsche Bank indicate that the Federal Reserve may consecutively cut interest rates by 25 basis points in the remaining three meetings of this year (September, October, December), a significant upgrade from the previous expectations of rate cuts only in September and December by the two institutions.
This adjustment is based on last week's data showing easing inflationary pressures and signs of a continued slowdown in the labor market—markets generally expect the Federal Reserve to restart its easing cycle for the first time after December 2024, beginning rate cuts in this week's policy meeting.
Federal Reserve Chairman Jerome Powell previously hinted that a rate cut might occur at the meeting on September 16-17, emphasizing the rising risks in the labor market while warning that inflation threats still exist.
Morgan Stanley further pointed out that the current market environment allows the Federal Reserve to shift to a neutral policy stance more quickly, and it may even cut rates by 25 basis points in each of the next four meetings starting this week, until January next year, with expectations of further cuts in April and July 2026.
Matthew Luzetti, Chief U.S. Economist at Deutsche Bank, believes that although the current forecast does not include further rate cuts in 2026, if inflation and labor market trends do not align with levels below the neutral interest rate, the risks will lean towards more rate cuts.
According to the CME FedWatch Tool, traders are betting on a 95% probability of a 25 basis point rate cut next week, with only a 5% probability betting on a more aggressive 50 basis point cut.
Notably, after the weak labor data in August, Standard Chartered Bank became the only institution predicting a 50 basis point rate cut this month, contrasting sharply with mainstream expectations
