By Joel Jose and Akriti Shah (Reuters) - Morgan Stanley and Deutsche Bank expect the U.S. Federal Reserve to deliver interest rate cuts at all its three meetings this year, following data this week
Morgan Stanley and Deutsche Bank Anticipate Three US Rate Cuts This Year
Interest Rate Cut Predictions by Major Banks
By Joel Jose and Akriti Shah
Market Conditions and Fed's Easing Cycle
(Reuters) - Morgan Stanley and Deutsche Bank expect the U.S. Federal Reserve to deliver interest rate cuts at all its three meetings this year, following data this week showing more modest inflation pressures.
Traders' Expectations for Rate Cuts
The two brokerages in separate notes said on Friday they now expect the Fed to cut rates by 25 basis points at each of its remaining meetings in September, October and December.
Divergence in Predictions Among Brokerages
The firms previously forecast one 25-basis-point cut each in September and December.
The Fed is widely expected to kick off a new easing cycle in next week's policy meeting - its first since the 25-bps rate cut in December 2024 - after recent data pointed to a slowdown in the job market.
Last month, Fed Chair Jerome Powell signaled a rate cut was possible at the September 16-17 policy meeting, citing rising labor market risks, while cautioning that inflation remained a threat.
Morgan Stanley said market conditions give the Fed room to move more quickly toward a neutral policy stance.
According to the Wall Street brokerage, the Fed is likely to deliver four back-to-back 25-bps rate cuts starting next week and continuing through January, with two further cuts projected for April and July 2026.
"While we currently do not have additional rate cuts in our forecast for next year, given that our inflation and labor market forecasts are inconsistent with rates below neutral, risks are skewed towards more reductions in 2026," said Matthew Luzzetti, chief U.S. economist at Deutsche Bank.
Traders have priced in a 95% chance of a 25-bps rate cut next week, according the CME FedWatch Tool, with a slim 5% chance of a deeper 50-bps cut.
After a soft August labor print, Standard Chartered emerged as the only brokerage predicting a 50-bps rate cut by the Fed this month, diverging from the broader consensus.
(Reporting by Joel Jose and Akriti Shah in Bengaluru; Editing by Maju Samuel)
