Investing.com – Morgan Stanley strategists expect a series of 25-basis point interest rate cuts stretching through mid-2025, they said in a note following the Federal Reserve’s half-point rate reduction announced Wednesday.
Strategists note this forecast aligns with the Fed’s stance of data dependency, with Chair Jerome Powell emphasizing the need for the central bank to remain nimble in its policy approach.
“We see a string of 25bp cuts through mid-2025,” starting with two more 25bp reductions before year-end, bringing the rate down to 4.4%. Morgan Stanley’s team expects the Fed to continue cutting rates into 2025, with an additional four 25bp cuts projected in the first half of next year.
This dovish projection aligns with the Fed’s confidence in inflation continuing to moderate toward its 2% target.
Powell said during the press conference that the economy remains healthy and the labor market solid, but stressed that it’s time “to recalibrate policy.”
Inflation risks have eased recently, while concerns over the labor market have risen. To demonstrate the Fed’s determination to stay ahead of the curve and their confidence in inflation’s trajectory, Powell emphasized that a significant initial cut was justified.
The Fed cut rates by 50 basis points (bp), marking the first reduction of that magnitude since the 2008 financial crisis.
“A larger first move signals the Fed’s commitment to not falling behind the curve and their confidence in disinflation. Powell stressed the cadence of future cuts will be based on incoming data,” Morgan Stanley strategists said in a note.
Alongside this cut, the Fed’s “dot plot” signaled an additional 50 basis points of reductions by year-end, aligning closely with market expectations.
The individual projections from Fed officials suggested another full percentage point in cuts by the end of 2025 and a further half-point in 2026. Overall, the dot plot indicates a total decline of around 2 percentage points from Wednesday’s decision.
