Gold prices just lower; monthly gains on track
Investing.com -- Morgan Stanley has revised its outlook for U.S. monetary policy, now expecting the Federal Reserve to deliver two rate cuts this year and four more in 2026, citing mounting concerns about labor market weakness.
“We alter our outlook for monetary policy in favor of 50bp in rate cuts this year and 100bp in 2026 for a terminal target range of 2.75–3.0%,” Morgan Stanley analysts said in a note on Friday.
“The Fed sees downside risk to labor markets as warranting less monetary restriction. Activity data suggest the economy has cooled, but remains resilient.”
The shift follows Fed Chair Jerome Powell’s remarks at Jackson Hole, where he highlighted softness in recent employment reports. July’s jobs data showed 258,000 in downward revisions to prior months, while the three-month average change in payrolls slowed to 35,000 for headline jobs and 52,000 for private payrolls.
“Prior to this report, most FOMC participants felt risks to the dual mandate were skewed in the direction of inflation persistence,” Morgan Stanley said. “However, at Jackson Hole, Chair Powell made it clear that the July employment report increased the committee’s concern about weak labor demand.”
Morgan Stanley now expects 25bp rate cuts in September and December 2025, followed by four additional 25bp moves in March, June, September and December 2026. That compares with its prior forecast of cuts beginning in 2026 toward a terminal range of 2.50–2.75%.
“With policy in restrictive territory, the baseline outlook and the shifting balance of risks may warrant adjusting our policy stance,” Powell said at Jackson Hole. Still, Morgan Stanley noted the Fed is unlikely to begin with a larger 50bp move unless upcoming employment data show outright job losses.