Morgan Stanley Revises Outlook: Expects 25 bps Fed Rate Cuts in September and December 2025

HKAN | Aug 27

 

Morgan Stanley has updated its economic forecast, predicting that the U.S. Federal Reserve will implement two rate cuts of 25 basis points each, one in September 2025 and another in December 2025.

According to the investment bank, signs of cooling inflation, slowing job growth, and weaker consumer spending have strengthened the case for the Fed to begin easing monetary policy after holding rates steady for most of 2024.

The firm noted that while the Federal Reserve has remained cautious about cutting too early, the economic environment is shifting in a way that could force policymakers to stimulate growth. “We now expect the Fed to move in September and December, delivering a total of 50 bps in rate cuts before year-end 2025,” Morgan Stanley’s analysts said in their report.

This outlook comes as markets remain highly sensitive to Fed guidance, with traders closely watching upcoming inflation and labor market data for confirmation. Equity markets rallied slightly after the forecast, while bond yields dipped on expectations of looser monetary conditions next year.

If Morgan Stanley’s projections materialize, the U.S. economy could see a softer landing, with lower borrowing costs supporting both businesses and consumers heading into 2026.