Morgan Stanley dismisses rate cut doves, tips single Fed cut in 2025
The investment bank shrugged off soft US inflation data and trade turmoil to forecast one US Fed cut this year.
Investment bank Morgan Stanley hosed down expectations that soft US inflation data and trade turmoil would force the US Federal Reserve to slash interest rates in 2025 by sticking to its call for just one more rate cut this year.
US and Australian shares rose after headline US CPI (consumer price index) inflation eased to 2.8% in February, or 3.1% at a headline level stripping out the impact of volatile food and energy prices.
Morgan Stanley's economists said the latest CPI data is unlikely to translate into a sufficient fall in core PCE (personal consumption expenditures) inflation data as the Fed's preferred measure.
"Our current PCE translation is still consistent with our call of an extended Fed pause, with only one rate cut in 2025, happening in June," the bank told clients.
The economists now expect core PCE's three-month annualised pace to accelerate to 3.3% when the data drops on March 28 in a potential outcome likely to neuter talk of multiple interest rate cuts from the US central banks.
On Thursday morning, interest rate futures traders place a 98% chance that the Fed will hold rates when it meets on March 19, however the market and economists are divided about the future path over interest rates given significant uncertainty around fiscal policy and trade wars.
40% chance of US recession in 2025
Australia's interest rate sensitive tech sector opened up 1.1% on Thursday as the flagship S&P/ASX 200 Index added 0.3% to 7810 points to claw back some heavy losses after falling 8.7% since closing at 8555 points on February 14.
Local investment giant and risk bellwether Pinnacle (ASX: PNI) climbed 2.6% to $18.26 and is set to post only its second positive session in 16, as investors worry an implosion in electric vehicle maker Tesla (NASDAQ: TSLA) will hammer the performance of its star affiliate Hyperion.
In another note overnight Morgan Stanley revealed 85% of respondents to its Tesla investor survey said Elon Musk's political activities are having a negative or extremely negative impact on the brand. Tesla's share price has slumped 35% in 2025.
Elsewhere, in Singapore JP Morgan's chief economist warned there's a 40% chance the US goes into a recession in 2025 if overseas investors abandon it due to President Trump's policies, Reuters reported.
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Tom covered markets as a Markets Reporter & Commentator at the Australian Financial Review for nearly five years. Prior to that he was the Managing Editor of The Motley Fool Australia leading a team of around 20 investment writers during a five-year period of massive online growth. Before that Tom worked in equities management at the Bank of New York Mellon in London and as a holder of professional investment qualification the Investment Management Certificate is eligible for membership of the CFA Society of the UK.
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Tom covered markets as a Markets Reporter & Commentator at the Australian Financial Review for nearly five years. Prior to that he was the Managing Editor of The Motley Fool Australia leading a team of around 20 investment writers during a...
Tom covered markets as a Markets Reporter & Commentator at the Australian Financial Review for nearly five years. Prior to that he was the Managing Editor of The Motley Fool Australia leading a team of around 20 investment writers during a...
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