According to Reuters, the firm now expects the Federal Reserve to cut interest rates by 25 basis points this month. This represents a change from its previous forecast that monetary authorities would remain on hold in December.
The bank reported that it changed its view due to weaker U.S. data published last month. It added that positive comments from Federal Reserve officials also influenced the change. It mentioned FOMC Vice Chairman John Williams and Governor Christopher Waller as examples.
The firm said it is also possible that they were too quick in their previous analysis.
"It seems we got ahead of ourselves," said Morgan Stanley strategists. "We foresee dissents, and President Powell will likely replace the cut with changes in the statement text indicating that further cuts will require greater rigor."
Morgan Stanley also updated its overall forecast. The bank projected additional cuts of 25 basis points in January and April, resulting in a terminal rate between 3% and 3.25%.
"We expect President Powell to indicate that the recalibration phase of monetary policy has concluded. Any further adjustments will be considered meeting by meeting and will be based on the data obtained."
JPMorgan also changed its stance and forecast a 25 basis point cut at this meeting. The investment bank had previously argued that the Fed would wait until early 2026.
Investors in all markets are paying attention to next week's FOMC meeting. Officials will vote on the next possible Fed rate cut and update economic projections.
The policy committee, composed of 12 members, remains divided on whether lower rates are needed right now to support the labor market slowdown. They also disagree on whether a longer period of higher rates is necessary to contain inflation. Recent hiring data shows clear signs of cooling, which drives those advocating for cuts.
Some Federal Reserve officials have also warned that inflation remains a threat. Meanwhile, others stated that it was unlikely that previous price peaks would hold. New inflation data released late last week reinforced arguments for a rate cut.
According to the CME FedWatch tool, traders currently estimate a probability of 86.2% for a quarter-point rate cut at the FOMC meeting on December 9 and 10.
