Morgan Stanley: The Federal Reserve will cut interest rates 7 times in 2026, with the final rate dropping to 2.5% to 2.75%
Morgan Stanley's latest forecast shows that the Federal Reserve may start a rate-cutting cycle in March 2026, expecting to reduce rates 7 times throughout the year until the interest rate reaches the range of 2.5%-2.75%.
The current federal funds rate remains at 4.25%-4.5%. Although the Federal Reserve signaled a dovish stance as early as the March meeting, recent inflationary pressures from tariff policies have also forced the Federal Reserve to remain cautious.
Michael Gapen, Morgan Stanley's Chief U.S. Economist, stated that the new tariff policies will drive up inflation in the next 3-6 months, prompting the bank to delay the rate cut timeline from June 2025 to March 2026. Additionally, the analysis also indicates that the GDP growth rate for 2025 has been lowered from the March forecast of 2.0% to 1.4%, significantly below the expected 2.8% for 2024.
If rate cuts occur as scheduled, market liquidity is expected to significantly increase, and risk assets may usher in a new round of rising trends. Historical data shows that a low interest rate environment often encourages investors to turn to high-risk assets like Bitcoin.
Moreover, the recent continuous inflow of funds into Bitcoin ETFs also reflects, to some extent, the market's early layout and response to rate cut expectations.
However, the Federal Reserve's real-time assessment of inflation trends will ultimately determine the direction of policy, especially in the current economic situation filled with uncertainties.
Overall, Morgan Stanley's rate cut forecast for 2026 demonstrates its optimistic expectations for the economic outlook. The institution expects that this series of rate cuts will effectively control inflation while providing strong support for economic growth.
But the Federal Reserve's subsequent actions will undoubtedly be a focus of close attention in the market, as its interest rate decisions and implementation effects will also be key factors in assessing the overall economic direction.
