Anticipating an imminent shift in the monetary policy landscape, Morgan Stanley analysts have revised their outlook and now predict that the Federal Reserve will implement an interest rate hike during its July meeting. This revised forecast comes in response to Chair Jerome Powell’s recent affirmation that the central bank remains committed to its assertive tightening trajectory.
In a research note released on Tuesday, economists at Morgan Stanley, including Ellen Zentner, conveyed their updated perspective, stating, “We have reassessed the situation and believe that the likelihood of a July interest rate hike is considerably greater than our initial expectations.” Consequently, they anticipate a 25 basis point increase next month.
Earlier this month, certain observers closely monitoring the actions of the Federal Reserve were perplexed when policymakers opted to maintain interest rates at their present levels, while simultaneously indicating that further hikes would be necessary to rein in inflation. This decision raised questions regarding the future course of rate adjustments.
To address this uncertainty, Powell took the opportunity last week to dispel any notions that the central bank was veering away from future rate increases. During his presentation of the Fed’s semiannual economic update to Congress, Powell emphasized that “the process of achieving the 2% inflation target is far from complete.”
The economists at Morgan Stanley, as Bloomberg reported, integrated Powell’s stance into their revised forecast, leveraging his comments as a key influence. They observed that Powell explicitly expressed his alignment with those committee members who strongly advocated for higher interest rates.
