Don’t Expect Interest Rate Cuts Anytime Soon, Says Morgan Stanley (MS)

The U.S. Federal Reserve is likely to remain on hold with interest rates amid signs of rising inflation and a weak economy, says Wall Street investment bank Morgan Stanley MS +0.34% ▲ .

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Analysts at Morgan Stanley expects the U.S. central bank to “remain on hold and retain its easing bias” in the face of difficult economic data, as well as spiking crude oil prices that are hovering around $100 per barrel following military attacks on Iran.

Morgan Stanley’s Chief U.S. economist Michael Gapen is now projecting only one interest rate cut this year, likely in the autumn, and one cut in 2027. Those moves by the Fed are likely to keep the central bank’s terminal rate in a range of 3% to 3.25%.

What the Data Says About the U.S. Economy

“The oil price shock should mean higher headline inflation forecasts, but models and past Fedspeak suggest the Fed will look through energy price pressures,” writes Gapen in a note to clients. Morgan Stanley expects the Fed to hold interest rates for the time being.

“We have high conviction that the Fed will not respond with rate hikes,” adds Gapen in his note, adding that appropriate policy “calls for the Fed to ‘look through’ energy price pressures … and stay on hold or cut rates if activity weakens.”

The new outlook from Morgan Stanley comes on the same day that

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