Morgan Stanley Sees Consecutive Fed Rate Cuts Through January

01:55 PM EDT, 09/15/2025 (MT Newswires) -- The Federal Reserve is expected to cut interest rates consecutively until January, with this week's post-meeting policy guidance likely to signal an easing bias amid worries about the labor market, Morgan Stanley said in a note emailed Monday.

Markets reflect near certainty that the Federal Open Market Committee will reduce its policy rate by 25 basis points to 4% to 4.25% on Wednesday. After this week, there are three policy meetings to be held through January.

Morgan Stanley's outlook for Wednesday's meeting is in line with Wall Street's expectations, saying that Fed Chair Jerome Powell's tone is expected to be similar to that in his Jackson Hole speech last month.

"We think the median dot will still show two cuts this year, though we expect data in real time to move the Fed to cut consecutively through January," Morgan Stanley Chief US Economist Michael Gapen wrote. "For 2026, we expect the median dot to show two rate cuts versus one previously."

While the Fed in July described labor market conditions as solid and the unemployment rate as low, Gapen said the FOMC is likely to say in its September policy statement that "job growth has slowed" while still acknowledging low unemployment.

"We expect policy guidance to suggest a new easing bias as the FOMC considers 'the extent and timing of additional reductions' to the policy rate," Gapen said. "The prior statement had not shown a policy bias, instead referring to 'adjustments' to the funds rate."

Morgan Stanley sees the FOMC reiterating that inflation "remains somewhat elevated" with elaboration on temporary upward pressures from tariffs.

The statement is expected to include reference to risks to both sides of its mandate, "but after the last two weak employment reports, we expect new language that 'downside risks to employment have risen'," Gapen said.

Should Stephen Miran, who is President Donald Trump's nominee to replace Fed Governor Adriana Kugler, participate in this week's FOMC meeting, he is likely to dissent in favor of a half-percentage-point rate cut, according to Morgan Stanley.

The Senate will likely vote on Miran's nomination on Monday, the firm said. Kugler resigned August.

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