Morgan Stanley Adjusts Rate Cut Outlook as Fed Remains Wary of Inflation

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Morgan Stanley Adjusts Rate Cut Outlook as Fed Remains Wary of Inflation

Bitget-RWA2025/11/20 16:04

By:Bitget-RWA

- Morgan Stanley revised Fed rate cut forecasts to three 25-basis-point cuts in Q1-Q2 2025, abandoning a December 2025 cut amid persistent inflation and resilient labor markets. - The firm projects 100-basis-point easing in 2025 and a 25-basis-point cut in 2026, reflecting the Fed's cautious approach outlined in September's updated economic projections. - Strategic equity moves include downgrading rate-sensitive stocks like Corebridge Financial and Dell , while upgrading Nasdaq and Apollo Global Management

Morgan Stanley has updated its forecast for Federal Reserve interest rate cuts, dropping its earlier prediction of a cut in December 2025. The firm now expects three rate reductions to occur in January, April, and June of the coming year. This adjustment is based on the company’s latest evaluation of economic trends and monetary policy, as detailed in a recent commentary on bond strategy

based on Morgan Stanley’s research

. The new outlook calls for a total of 100 basis points in rate cuts during 2025, with an additional 25-basis-point reduction projected for 2026, indicating a more gradual approach to monetary easing.

The move away from a December cut is consistent with broader market trends, such as ongoing inflation and a labor market that has shown resilience even after recent data adjustments. Morgan Stanley’s report points to the Federal Reserve’s careful approach,

as shown in the September Summary of Economic Projections

, which lowered the median year-end 2025 Fed Funds rate forecast to 3.625% from 3.875% in June. This change suggests a 50-basis-point easing for the rest of 2025, with any further cuts depending on future economic developments.

The firm’s updated rate projections come alongside several notable moves in the stock market.

Morgan Stanley

lowered its rating on Corebridge Financial to Equalweight

, pointing to worries about narrowing spreads and sensitivity to interest rate changes. Likewise, Dell Technologies

was downgraded to Underweight

, due to rising memory expenses and pressure on profit margins. These decisions highlight the firm’s attention to sector-specific risks in a period of rate uncertainty.

On the other hand, Morgan Stanley

upgraded Nasdaq to Overweight

, citing positive cyclical factors and strong long-term growth prospects. The firm also

increased its price target for Apollo Global Management

to $180, reflecting confidence in the company’s fee-based earnings and a rebound in capital markets. These varied recommendations illustrate Morgan Stanley’s balanced approach to weighing short-term economic headwinds against longer-term opportunities.

Morgan Stanley’s internal outlook also incorporates expectations for Fed policy. During a recent earnings call, MidWestOne Financial

mentioned it expects two 25-basis-point cuts

in the latter half of 2025, mainly in the fourth quarter, which matches Morgan Stanley’s revised schedule. This growing consensus among market players points to increasing agreement on the Federal Reserve’s slower pace toward policy normalization.

Morgan Stanley’s recent strategic changes reflect a broader shift in risk assessment across different asset types. While the firm remains wary of sectors sensitive to interest rates, its upgrades in technology and financials show faith in underlying growth trends. As the Federal Reserve’s policy direction continues to evolve, investment strategies are being shaped by the ongoing challenge of balancing inflation management with economic stability.

Disclaimer: The content of this article solely reflects the author's opinion and does not represent the platform in any capacity. This article is not intended to serve as a reference for making investment decisions.

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