• Morgan Stanley no longer expects a Federal Reserve rate cut in December 2025, pushing the first easing move into January 2026.
  • The bank now projects three quarter-point rate cuts next year—in January, April, and June—citing continued labor market strength.
  • The firm maintained its forecast for the Fed's terminal rate, seeing it settling in a 3% to 3.25% range.

Morgan Stanley has significantly revised its interest rate outlook, scrapping its call for a Federal Reserve cut this year and now anticipating the first of three easing moves in early 2026, according to the bank's updated forecast.

The shift, communicated by the firm's economists, reflects a reassessment of recession risks in the face of persistently strong employment data. Recent payroll figures have reduced the perceived risk of a near-term spike in unemployment, diminishing the urgency for the Fed to act before year-end.

"The strength in the labor market has been more persistent than we previously anticipated," said a person familiar with the bank's internal discussions. "This pushes the timeline for the first cut squarely into next year."

Morgan Stanley's new baseline sees the Fed holding steady for the remainder of 2025, followed by a series of three 25-basis-point cuts commencing in January 2026, with subsequent moves in April and June. Despite this delayed start to the easing cycle, the bank's projection for where rates will ultimately settle remains unchanged, with a terminal rate forecast of 3% to 3.25%.

The revision places Morgan Stanley among a growing cohort of Wall Street firms recalibrating their expectations as the U.S. economy continues to show remarkable resilience. The adjustment suggests a growing consensus that the Fed can afford to be patient, keeping policy restrictive for longer to ensure inflation is fully contained, without immediately threatening economic growth.

Efforts to reach a Morgan Stanley spokesperson for additional comment were not immediately successful. The updated forecast arrives amid a period of robust performance for the bank itself, which recently posted record quarterly revenues, bolstered by a revival in capital markets activity.

Correction: An earlier version of this article misstated the year of the projected rate cuts. They are forecast for 2026, not 2025.