Updated
Updated · Morgan Stanley · Jul 17
Morgan Stanley Sees Fed Holding Rates in 2026, Cutting Twice in 2027
Updated
Updated · Morgan Stanley · Jul 17

Morgan Stanley Sees Fed Holding Rates in 2026, Cutting Twice in 2027

1 articles · Updated · Morgan Stanley · Jul 17

Summary

  • Morgan Stanley expects the Fed to leave rates unchanged this year and then deliver two cuts in 2027, diverging from markets and FOMC projections that still lean toward another hike.
  • 3.5% June inflation, down from 4.2% in May, plus cooling rent, housing and energy costs underpin that view; Brent has fallen below $70 after topping $120 during Iran tensions.
  • 57,000 June job gains and 74,000 in downward revisions to the prior two months also point to softer labor demand, supporting the bank’s call that the Fed will not hike in July.
  • Morgan Stanley says markets have already tightened conditions by the equivalent of four 25-basis-point hikes, while Chair Kevin Warsh’s lighter forward guidance could increase rate volatility.
  • For investors, the bank sees 10-year Treasury yields easing to 4.25% by year-end, with fixed-income returns driven more by income and security selection than broad price gains.

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