Bitcoin price today: dips below $112k, near 6-wk low despite Fed cut bets
Investing.com -- The Federal Reserve has signaled it is willing to look through near-term inflation after recently maintaining its forecast for two rate cuts this year, but Morgan Stanley (NYSE:MS) believes the Fed will struggle to deliver a series of cuts this year as inflation is likely to accelerate.
"The Fed signaled it was prepared to look through tariff-induced inflation, economists at Morgan Stanley said in a recent note, but this may be "hard to execute in practice, particularly for a Fed that is data dependent."
Following the Fed’s decision to keep rates unchanged last week, fed chairman Jerome Powell signaled that he was prepared to look-through tariff-induced inflation.
"It can be the case that it’s appropriate sometimes to look through inflation if it’s going to go away quickly without action by us, if it’s transitory." Powell said during a Mar. 19 press conference. "And that can be the case in the case of tariff inflation."
But inflation is expected to pick up pace in the second of the year, Morgan Stanley economists estimate, muddying the rate cutting path for the Fed and forcing a longer pause.
"Our outlook calls for the y/y rate of PCE inflation to rise to 2.8% by December, with more forceful acceleration in the second half of the year than in the first," the economists said.
"We think the Fed will need to maintain a moderately restrictive policy stance for longer before it gains confidence on inflation to justify further cuts," they added, maintaining their forecast for one cut in June this year.
The shallower rate cut path this year will, however, pave the way for aggressive rate cuts next year, Morgan Stanley said, as the Fed plays catch up.
"We continue to call for a Fed that is more likely to be behind the curve and deliver more back-loaded cuts in 2026."