Morgan Stanley Expects Three Fed Rate Cuts in 2025

Morgan Stanley has revised its projections to expect the U.S. Federal Reserve to implement interest rate cuts at all three remaining meetings in 2025, specifically in September, October, and December, with additional cuts anticipated in early 2026. This shift in forecast follows recent data showing a notable rise in consumer prices alongside signs of a weakening labor market, including slower job growth and increased unemployment claims, which have intensified expectations for monetary easing. A Reuters poll of economists overwhelmingly predicts a 25 basis-point rate cut in the upcoming September meeting, marking the Fed's first rate reduction since late 2024, with many also anticipating further cuts by year-end. Despite inflation remaining above the Fed's 2% target, the central bank is expected to prioritize supporting the labor market, given persistent signs of economic slowdown and softening wage growth. Morgan Stanley economists highlight softer-than-expected core inflation and more benign tariff pass-through effects as factors likely to bolster the Fed's confidence in easing policy. Overall, the combination of persistent inflation pressures and deteriorating employment conditions is driving market consensus toward multiple rate reductions to stimulate the economy.