Morgan Stanley Forecasts Fed Rate Cuts in 2025

Morgan Stanley predicts the Federal Reserve will cut interest rates by 25 basis points in both September and December 2025. This forecast shift follows Fed Chair Jerome Powell’s focus on labor market risks over inflation at the Jackson Hole symposium.

This outlook matters due to potential shifts in financial markets, liquidity impacts, and the broader economic narrative following increased labor market focus.

Morgan Stanley has shifted its perspective based on Jerome Powell’s remarks at the Jackson Hole symposium. Powell emphasized labor market risks over inflation concerns. This adjustment follows previous skepticism about rate cuts, as the bank initially favored a higher rate stance.

Powell’s comments prompted Morgan Stanley to change its expectations. The investment bank now anticipates rate cuts will occur in both September and December 2025. These projections align with shifts seen in options and futures markets.

Andrew Sheets, Head of Corporate Credit Research, Morgan Stanley, said, “The market thinks the Fed is likely to cut rates come September. Morgan Stanley economists disagree. Our Head of Corporate Credit Research Andrew Sheets explains our viewpoint and presents three scenarios for corporate credit…” Source

Financial markets have reacted with options and futures markets pricing an 82–87% probability of a September rate cut. Such cuts historically correlate with bullish trends in cryptocurrencies like BTC and ETH, which are sensitive to liquidity changes.

The focus on labor markets implies a careful balancing act for the Federal Reserve. An emphasis on employment rather than inflation signals a strategic shift. Rate cuts could catalyze additional capital inflows as the Fed adjusts its policy stance.

This updated outlook from Morgan Stanley could influence various sectors, including cryptocurrencies and financial markets, which respond to liquidity signals. History suggests that rate cuts can lead to bullish runs in non-sovereign assets like BTC and ETH, as well as potential resurgence in digital finance.