Morgan Stanley Sees Two 25-Basis-Point Fed Cuts in H2 2026
Morgan Stanley forecasts two 25-basis-point Fed rate cuts in H2 2026, lowering policy rate to 3.0%–3.25%. The bank cites stable long-term inflation expectations near pre-pandemic levels despite an oil-driven one-year price spike and an 80-basis-point equivalent financial tightening.
1. Fed Rate Cut Outlook
Morgan Stanley expects the Fed to begin easing policy in the second half of 2026 with two 25-basis-point cuts, lowering the federal funds rate toward a 3.0%–3.25% range. The firm cites stable long-term inflation expectations near pre-pandemic levels and estimates that energy-driven price pressures, a stronger dollar and higher equity risk premiums have already tightened financial conditions by about 80 basis points, reducing the need for additional policy restraint.