Morgan Stanley Predicts: Fed to Start Cutting Interest Rates in September, May Cut 50 Basis Points

Morgan Stanley expects the Federal Reserve (Fed) to start cutting interest rates in September and predicts a total of three cuts, with each cut being 25 basis points. The firm also notes that if the next job report shows the unemployment rate continues to rise, the Fed may further cut interest rates by 50 basis points.

Earlier, several Fed officials spoke publicly.

San Francisco Federal Reserve Chairman Daly noted that with increasingly strong evidence of a softening labor market and no signs of tariff-driven inflation, the time for rate cuts is near. Daly also stated that this year's two 25-basis-point rate cuts look like an appropriate adjustment.

New York Federal Reserve Chairman Williams noted that the labor market is "stable" but sees job growth slowing down. He will maintain an "open-minded" stance on rate cuts, but the Fed still needs to ensure inflation is under control.

It was reported that last Friday's data showed the United States added only 73,000 nonfarm jobs in July, far below market expectations. Moreover, May and June job additions were revised downward by a net 258,000. This series of weak signals has led to significant market upgrades for Fed rate cuts in September.

Although the market expects the Fed to cut interest rates due to poor job data, Morgan Stanley still maintains that the Fed will maintain its current stance and not cut interest rates.