Morgan Stanley forecasts two US Fed rate hikes and an ECB move
In the United States, Morgan Stanley forecasts that the Federal Reserve will raise the interest rate twice by the end of 2026, while the European Central Bank will make another increase in its deposit rate in December. This was reported by Asharq Al-Awsat.
Forecast for the Fed
Morgan Stanley expects the Fed to raise the rate by 25 basis points following its September 15–16 meeting, and by another quarter of a percentage point in December. The bank explained the revision to its forecast by saying that the latest inflation readings in the United States were higher than expected.
In a note released on Monday, Morgan Stanley analysts said that disinflation is occurring more slowly and is less convincing than policymakers likely need. The bank also expects the US central bank to signal further policy tightening before a pause as inflation declines moderately.
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Among the arguments in favor of tighter policy, Morgan Stanley cited the secondary effects of energy prices, strong demand linked to investments in artificial intelligence, a possible temporary increase in the neutral rate, and concerns about confidence in monetary policy.
Expectations for the ECB
For the European Central Bank, Morgan Stanley now forecasts an additional 25-basis-point increase in the deposit rate in December, to 2.75%. Previously, the bank expected that the ECB's monetary policy tightening cycle had already ended.
Analysts cited resilient economic growth in the eurozone and higher energy prices as reasons for revising the forecast. Morgan Stanley also expects only one ECB rate cut in 2027, in December. The forecasts were released ahead of monetary policy decisions by the Fed and the Bank of Japan.
