• Morgan Stanley now expects the Federal Reserve to cut rates in September and December, pushing back its earlier forecast of June and September.
  • The shift reflects a more cautious Fed after the latest meeting, with Chair Jerome Powell signaling that clear progress on inflation is still needed.
  • Rising oil prices and geopolitical risks are adding uncertainty and complicating the Fed’s policy path.

Morgan Stanley has revised its forecast for Federal Reserve rate cuts, now anticipating moves in September and December instead of June and September, according to people familiar with the bank’s analysis. The adjustment aligns with a broader industry shift, as other major banks like Goldman Sachs and Barclays have also pushed back their expectations for easing amid stubborn inflation and market volatility.

Efforts to predict the Fed’s path have hit a snag, with Chair Powell emphasizing the need for clearer inflation progress before decisive action. Without such progress, rate cuts could be delayed further—or not happen at all—unless economic growth weakens sharply, the bank warns. This cautious stance comes as oil-price pressures and geopolitical tensions, notably in the Middle East, contribute to uncertain inflation trajectories, making the Fed’s decisions more data-dependent.

“What we’re seeing is a more measured approach from the Fed, driven by these external risks,” said a source close to the matter, who spoke on condition of anonymity. The bank sees a balanced stance from the Fed but notes markets may face volatility in the meantime, as investors react to policy signals and energy developments. Attempts to reach Morgan Stanley for additional comment were not immediately successful.

In the short term, markets should brace for potential swings around Fed communications and oil-price movements. If inflation decelerates sufficiently or growth slows meaningfully, the timing of cuts could be reconsidered. Otherwise, the delay might extend, impacting loan rates, mortgage costs, and corporate financing dynamics for stakeholders like investors and borrowers.

This shift mirrors past patterns where banks adjusted forecasts in response to evolving data, such as during prior cycles with energy shocks. For now, the focus remains on current developments, with the Fed’s projections shaping expectations in a landscape where every data point counts.

Correction: An earlier version misstated the timing of the expected rate cuts; it is September and December, not later in the year.