Morgan Stanley Predicts Fed to Hold Rates This Year Despite Rate Hike Bets

Wall Street giant Morgan Stanley expects the Federal Reserve to leave interest rates unchanged throughout this year, but has warned of factors that could warrant a rate hike. Fed President Neel Kashkari has also weighed in on monetary policy, cautioning that the central bank might need to raise rates if inflation persists.

Morgan Stanley still predicts the Fed will hold rates steady this year, but noted that rate hikes could return if the unemployment rate drops below 4% or if inflation remains elevated. U.S. PCE inflation recently rose to 4.1%, its highest level since 2023, fueling concerns about persistent price pressures. However, oil prices have continued to fall following the U.S.-Iran peace deal, which is expected to ease inflationary pressure on energy prices—supporting the view that a Fed rate hike remains unlikely this year.

In contrast, Bank of America has predicted three rate hikes this year, starting at the September FOMC meeting. Crypto traders are also pricing in a possible hike, with Polymarket data showing a 53% chance of a rate increase this year, potentially as soon as September. CME FedWatch data indicates a 47.3% probability of a rate hike at the September FOMC meeting, with similar odds for the October and December meetings.

Minneapolis Fed President Neel Kashkari revealed in an interview with Bloomberg that he was among those who projected a rate hike this year. He cited signs of widespread inflation as the reason for this stance. Following the June FOMC meeting, the Fed leaned hawkish: nine of 18 officials penciled in at least one hike this year, with six of those expecting multiple hikes.

Kashkari emphasized that his inflation concerns extend beyond the Middle East conflict and global oil supply disruptions. “I’m concerned about inflation, and it’s not only tied to what’s happening in the Middle East, it’s just the impression of broader inflationary pressures in the economy,” he said.

Despite the mixed signals, Morgan Stanley’s base case remains that the Fed will hold rates steady, though risks remain tilted toward a potential hike later in the year.

Source: https://coingape.com/morgan-stanley-predicts-fed-to-hold-rates-this-year-despite-rate-hike-bets/