Morgan Stanley has adjusted its expectations for U.S. monetary policy after the Federal Open Market Committee left the federal funds rate unchanged at its April meeting and signaled a reduced inclination toward easing.
Analyst Michael Gapen reworked the firm's forecast, moving projected rate cuts out of this year and into early 2027. Where Morgan Stanley had previously penciled in reductions in September and December of this year, the bank now anticipates two 25-basis-point cuts in January and March of 2027. That sequence would lower the terminal target range to 3.0%–3.25%.
The FOMC statement influenced the revision in several ways. It upgraded its description of inflation from "somewhat elevated" to "elevated," and three committee members dissented in favor of removing the easing bias entirely. Morgan Stanley regarded those dissents as meaningful in assessing the committee's posture.
"Risks to our view of two rate cuts this year are clearly skewed in the direction of a Fed on hold through year-end," Gapen wrote.
The bank also highlighted repeated comments from Fed Chair Jerome Powell that the center of the committee is moving toward a more neutral stance as an important signal. In addition, Morgan Stanley pointed to elevated inflation readings, a resilient economy, and rising energy prices as factors that have raised the bar for the Fed to shift toward easing.
"With the Fed signaling it almost moved to symmetrical policy rate guidance this month and emphasizing patience, we now look for two rate cuts, in January and March of 2027," Morgan Stanley wrote.
The firm noted that forward guidance could still change at the Fed's June meeting, leaving open the possibility that the committee's language or signals might be adjusted in the coming weeks.
Taken together, Morgan Stanley's revised outlook reflects a view that recent FOMC messaging and economic developments have made near-term easing less likely, shifting expected policy relief into the start of 2027.