Wall Street investment bank Morgan Stanley (MS) expects the U.S. Federal Reserve to lower interest rates at each of its final three meetings of the year.
In a note to clients, the bank’s economists say they also expect a fourth interest rate cut at the U.S. central bank’s first policy meeting in 2026.
Economists led by Michael Gapen write that they expect a total of four 25-basis point rate cuts from the U.S. Federal Reserve between now and early 2026 for a total reduction of 1%.
Morgan Stanley says that inflation in the U.S. continues to be benign, paving the way for rate cuts in the coming months.
“Softer-than-expected inflation may give the Fed greater confidence that inflation expectations remain anchored despite tariff-driven pressures,” writes Gapen.
At the same time, the central bank in Washington, D.C. is likely to focus more on a faltering labour market in the U.S., which could use the support provided by lower borrowing costs.
Data in recent months has shown a deteriorating job market in the U.S., along with a slowing economy. As such, Morgan Stanley now sees four consecutive interest rate reductions.
After that, the U.S. Federal Reserve will likely pause to figure out how close rates are to neutral and then resume lowering borrowing costs starting in April and July of next year.
By the end of January 2026, Morgan Stanley says that it expects the U.S. Federal Reserve’s terminal rate to be between 2.75% and 3%.
The stock of Morgan Stanley has risen 25% this year to trade at $156.48 U.S. per share.
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