Key Facts
• On September 12, Morgan Stanley predicted three more rate cuts by the Federal Reserve in 2025.
• Each cut is expected to be 0.25%, totaling 0.75% by year-end.
• Previous forecast included two cuts in September and December.
• Federal Reserve may continue rate cuts into January 2026, totaling four consecutive cuts.
• Additional cuts are anticipated in April and July 2026.
• CME FedWatch indicates a 92.7% probability of a 0.25% cut at next week’s FOMC meeting.
• Probability of a larger 0.50% cut is 7.3%.
• August Consumer Price Index (CPI) showed the largest year-on-year increase since January.
• Despite CPI growth, labor market weakness supports rate cut expectations.
• The Federal Reserve’s last rate cut occurred in December 2024.
Summary
Morgan Stanley forecasts that the U.S. Federal Reserve will implement three additional 0.25% rate cuts during the remaining Federal Open Market Committee (FOMC) meetings in 2025, totaling 0.75% by year-end. This marks an adjustment from their earlier prediction of two cuts in September and December. The bank also anticipates a fourth consecutive cut in January 2026, with further reductions likely in April and July 2026. Market data from CME FedWatch shows a 92.7% probability of a 0.25% cut at the upcoming FOMC meeting, while a 0.50% cut is less likely at 7.3%. Despite a significant rise in the August Consumer Price Index, labor market challenges reinforce expectations for resumed rate cuts. The Federal Reserve’s last rate cut occurred in December 2024.
