Both Morgan Stanley and Deutsche Bank predict that the Fed will cut interest rates at the remaining three meetings this year. In separate reports, the two agencies said they expect a 25 basis point cut at their September, October and December meetings.
Both agencies had previously predicted only one fee cut in September and December. This week’s data showed softening inflationary pressures, which contributed to increased expectations.
The Fed is expected to cut interest rates next week, leading to a new easing cycle for the first time since it was cut by 25 basis points in December 2024. Chairman Jerome Powell last month said interest rate cuts could be made at its September 16-17 meeting, arguing that risks to the labour market are increasing.
Morgan Stanley said the market situation would provide room for the Fed to move more quickly into a “neutral” policy stance, predicting that four consecutive 25 basis points cuts will be made at the September-January meeting, with two additional cuts possible in April and July 2026.
Deutsche Bank’s chief economist Matthew Lutzetti said the current forecast does not predict additional cuts in 2026, but that risk points to further cuts in response to inflation and the development of labor market data.
Similar expectations are priced in the market. According to CME FedWatch Tool Data, the probability of a 25 basis point reduction next week is considered to be 95%, while a more aggressive 50 basis point cut is projected to be 5%. Standard Chartered is the only institution in the market that expects to cut 50 basis points this month.
*This is not investment advice.
