Morgan Stanley Forecasts Two Fed Hikes and ECB Rise in 2023
Morgan Stanley projects the Federal Reserve will implement two 25-basis-point rate hikes this year. The bank also expects the European Central Bank to raise rates once more in December.
Morgan Stanley forecasts two 25-basis-point increases in U.S. interest rates for 2023. The bank expects the Federal Reserve to act at its September 15-16 meeting. A second hike is projected for December. These moves follow inflation data that exceeded market expectations. The brokerage assesses the disinflation process as slower than required by policymakers.
The forecast aligns with a broader hawkish shift among major Wall Street banks. The decision comes ahead of policy meetings by the Fed and the Bank of Japan. The European Central Bank recently resumed its tightening cycle. Global markets remain focused on the trajectory of global interest rates. Investors anticipate further restrictive policy measures from central banks.
Fed Policy Balances Risk Factors
Morgan Stanley cites energy prices and strong demand as key drivers. AI-related investment is sustaining economic activity. The neutral interest rate may be temporarily higher. Credibility concerns also influence the balance of risks. The brokerage concludes that policy must become somewhat more restrictive.
Fed Chair Kevin Warsh has avoided providing specific guidance. He took office in May of this year. Inflation remains above the target level. Oil prices are trading above 100 dollars per barrel. Financial markets overwhelmingly price in a rate increase. This week's meeting is viewed as the first hike of his tenure.
ECB Reverses Previous Rate Outlook
Morgan Stanley revised its European outlook to include one more hike. The bank now forecasts a 25-basis-point increase in December. This will lift the deposit rate to 2.75 percent. This change reverses the prior expectation that tightening had ended. Resilient euro zone growth supports this projection.
Higher energy prices also contribute to the revised forecast. The bank expects only one rate cut in 2027. That cut is currently scheduled for December. The report highlights the persistent pressure on central banks. This analysis is part of the GN markets/policy (en-US) coverage.
