Fed to cut rates twice by year-end now – Morgan Stanley

Key Takeaways:

• Morgan Stanley now expects two Fed rate cuts before the end of 2025
• One cut is predicted for September, another for December
• Further quarterly cuts are anticipated throughout 2026
• The terminal target range is projected at 2.75% to 3.00%
• This marks a significant shift from the bank’s original no-cut outlook

Morgan Stanley Revises Rate Outlook

Morgan Stanley has changed its forecast for the Federal Reserve’s interest rate strategy, shifting from a stance that anticipated no cuts at all this year to one that predicts two rate reductions before December. This updated stance underscores a notable turnaround in the bank’s view of U.S. monetary policy.

Projected Timeline for Cuts

According to the new estimates, Morgan Stanley envisions one rate cut in September and another by December. These moves highlight the investment bank’s belief that the Fed will adjust its policy earlier than previously expected to achieve its broader economic objectives.

Further Steps in 2026

The revised forecast also outlines that, following these initial moves in 2025, the Federal Reserve could continue cutting rates once every quarter throughout 2026. Morgan Stanley’s analysis indicates that these additional cuts will bring the Fed’s terminal target range down to between 2.75% and 3.00%.

Context of the Original Forecast

Previously, Morgan Stanley did not anticipate any reductions for this year, reflecting a more cautious expectation of the Fed’s policy path. The change to incorporate near-term cuts points to a shifting economic environment and a more proactive approach to rates than the bank had initially envisioned.

Conclusion

Morgan Stanley’s updated forecast signals a meaningful shift in how major financial institutions view the trajectory of U.S. interest rates. While no cuts were originally on the table, the projection of two reductions by year-end and ongoing quarterly adjustments in 2026 underscores the increasing likelihood of a more accommodative monetary stance by the Federal Reserve.