Morgan Stanley: "US Interest Rate Cut May Be Delayed Until June Next Year"

Morgan Stanley has delayed the timing of a U.S. interest rate cut to June next year, stating that the U.S. Federal Reserve (Fed) will not lower rates until there is confidence that inflation returns to the policy target level of 2%.

Morgan Stanley analysts stated in a U.S. economic report released on the 19th (local time) that inflation will face upward pressure over the next two months. They noted that several upcoming inflation indicators may stubbornly show no change, and the Fed may start cutting rates later than the market expects.

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Morgan Stanley's Chief Economist Ellen Zentner said in the report, "The Fed needs clear and convincing evidence to cut rates, and achieving this will take until June next year."

While the market expects a 70% chance of a rate cut in March, Zentner analyzed that betting on a June rate cut is more reasonable. She also predicted that as service inflation continues to rise, the Consumer Price Index (CPI) will increase further over the next two months, and the six-month core Personal Consumption Expenditures (PCE) inflation rate will gradually rise in the first quarter of next year. However, she left open the possibility that the timing of rate cuts could be moved up depending on employment conditions or improvements in core CPI.

Foreign media pointed out that this outlook dampens market expectations that the pivot (a shift in monetary policy direction) could come as early as March next year. According to the Chicago Mercantile Exchange (CME) FedWatch on the same day, the financial market sees a 71.1% chance that the first rate cut will occur as early as March next year.

Recently, Fed officials have been issuing various warning statements to lower expectations for the first rate cut in March next year, as early rate cut hopes have been growing in the market.

Patrick Harker, President of the Federal Reserve Bank of Philadelphia, said in an interview with radio station WY on the same day, "I don't think the Fed needs to raise rates further," but added, "The fight against inflation is not over yet." He said that while the time to lower rates will come, he does not expect immediate action, and that the economic soft landing process could be challenging.

The three major U.S. stock indices had continued a nine-day winning streak amid hopes for rate cuts, but all reversed to decline on the day due to fatigue from the recent sharp rise. On the New York Stock Exchange (NYSE) that day, the Dow Jones Industrial Average closed at 37,082.00, down 475.92 points (1.27%) from the previous session. The large-cap S&P 500 index fell 70.02 points (1.47%) to 4,698.35, and the tech-heavy Nasdaq index dropped 225.28 points (1.50%) to close at 14,777.94.