The global financial market is witnessing a significant shift in forecasts regarding the monetary policy of the US Federal Reserve (Fed). What’s surprising is the sudden ‘U-turn’ from Wall Street’s ‘giants,’ particularly Morgan Stanley, regarding when the Fed will begin cutting interest rates. So, what has caused these leading experts to change their stance so rapidly?
Morgan Stanley: From ‘Holding Steady’ to ‘Early Rate Cuts’
Previously, Morgan Stanley held the view that the Fed would ‘hold steady’ until Q1 2026. However, a recent forecast update has completely changed the picture: the bank now expects the Fed to cut interest rates by 0.25% as early as this September, followed by another 0.25% in December, and then a consistent 0.25% every quarter until the end of 2026. This would bring the Fed’s benchmark interest rate to the 2.75% – 3.0% range, a significant adjustment compared to its initial projection.
Powell’s “Jackson Hole” Speech: The Game-Changing Turning Point
This sudden shift in perspective stems directly from Fed Chair Jerome Powell’s recent speech at the Jackson Hole conference. Powell’s tone has clearly shifted. Instead of strongly focusing on the risk of persistent inflation or an ‘overheated’ labor market, he emphasized the possibility of the Fed acting early to prevent a weakening labor market. This indicates a new priority: the Fed is concerned about potential risks to economic growth and employment, rather than solely fixating on inflation.
Domino Effect: Major Banks Concurrently Adjust Forecasts
The impact of this speech is undeniable. Immediately, many other banking ‘giants’ worldwide also concurrently adjusted their forecasts, following in Morgan Stanley’s footsteps. Leading financial institutions such as Barclays, BNP Paribas, and Deutsche Bank have all published new forecasts, expecting the Fed to cut interest rates by 0.25% in September. Notably, amidst this rapid ‘U-turn’ by major banks, only Bank of America (BofA) has maintained its view that the Fed will not touch interest rates this year.
Implications for the Market and the Economy
This synchronized shift from major Wall Street banks sends a strong message to the market: the scenario of interest rate cuts could unfold much sooner than initially anticipated. This not only impacts investment decisions but also directly affects the global economic outlook. Investors and businesses need to closely monitor further developments from the Fed and economic reports to formulate appropriate strategies in an environment where monetary policy is showing surprisingly sharp ‘U-turns’.
