Morgan Stanley Lowers Rate Cut Expectations Amid Tariff Uncertainty
Morgan Stanley has revised its forecast for the Federal Reserve’s interest rate cuts this year,
citing ongoing uncertainty surrounding the tariff policies implemented by President Donald Trump’s administration.
Topic
Forecasts
The U.S. bank now expects the Fed to cut rates by only 25 basis points in 2025,
a revision from its previous forecast of two cuts of the same magnitude in March and June.
This adjustment is attributed to the potential impact of new trade policies,
which could drive inflation higher and increase pressure on the Federal Reserve as it attempts to control inflationary pressures.
Analysts at Morgan Stanley noted in a research memo that uncertainty surrounding personal consumption
expenditure inflation will remain high, even if tariffs are avoided.
With this revision, Morgan Stanley joins banks such as Macquarie and Barclays in predicting only one rate cut this year,
while Goldman Sachs and Wells Fargo still expect two cuts.
U.S. Dollar Performance
The U.S. Dollar Index declined during Wednesday’s trading session,
weighed down by pressures from the ongoing trade war with China,
despite rising against the yuan.
Meanwhile, the Japanese yen recorded strong gains as expectations for further rate hikes by the Bank of Japan increased.
The dollar index, which measures the U.S. currency’s performance against six major currencies,
fell by 0.5% to 107 points.
Against the Japanese yen, the dollar dropped by 1% to 152.69 yen,
surpassing its lowest level in over a month at 153.09 per dollar.
This decline followed recent data showing real wage growth in Japan for the second consecutive month,
reinforcing bets that the Bank of Japan will continue tightening its monetary policy.
Morgan Stanley Lowers Rate Cut Expectations Amid Tariff Uncertainty