Morgan Stanley expects US interest rate reduction in response to inflation trends

(MENAFN) Morgan Stanley recently released a note suggesting that the trajectory of US price data is likely to influence the Federal Reserve's decisions regarding interest rates. The bank indicated that the current data trends reduce the likelihood of a rate cut in June, but anticipate a shift in policy by September.

The note highlights the importance of upcoming summer data, which is expected to show signs of inflation coming under control. This development could prompt the Fed to initiate its first of three anticipated interest rate cuts for the year.

The bank attributed its revised outlook to higher-than-expected inflation in the first quarter of 2024, which led to a more cautious approach by the Federal Reserve. However, it expects a slowdown in inflation in the second half of the year, which should provide the Fed with the confidence to proceed with lowering interest rates.

The decision-making process of the Federal Reserve is under close scrutiny by investors, consumers, and business leaders alike. They are eagerly awaiting signs that the economy is slowing sufficiently to warrant the first interest rate cut since the Fed began raising rates in March 2022. Despite these expectations, recent data has shown continued strong economic growth, with inflation remaining stubbornly high due to a sudden rise in prices of goods and services earlier in the year.

Looking ahead, Morgan Stanley Research anticipates that inflation will begin to decelerate in the first half of the year, paving the way for interest rate cuts. However, the Fed is likely to proceed cautiously, waiting for further confirmation that there will not be any inflationary surprises before making its move. As such, the bank predicts that the first interest rate cut will likely occur in September, with three cuts of 25 basis points each expected throughout the year.



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