Morgan Stanley , citing the resilience of the US economy shown in its September jobs report. On Thursday, the Fed withdrew its earlier prediction that the Fed would cut interest rates by 25 basis points at its December meeting .
On Thursday, Eastern Time, data released by the U.S. Bureau of Labor Statistics showed that U.S. nonfarm payrolls unexpectedly surged by 119,000 in September, significantly exceeding market expectations of 50,000.
The unemployment rate rose to 4.4% from 4.3% in August, a new high since 2021. Furthermore, the combined number of new jobs added in July and August was revised downward by 33,000.
The September non-farm payroll data was originally scheduled to be released on October 3, but was postponed due to the 43-day US government shutdown.
“The large and broad-based rebound in employment suggests that the summer’s economic slowdown may have been exaggerated,” Morgan Stanley strategists said. They added that despite a slight rise in the unemployment rate, the strong job growth indicates that the economy is stabilizing.
Morgan Stanley currently expects the Federal Reserve to cut interest rates in January, April and June 2026, eventually bringing the policy rate down to the 3% to 3.25% range.
Traders are still betting that the Federal Reserve will not cut interest rates in December. According to CME's FedWatch Tool, the probability of a 25 basis point rate cut by the Fed in December is currently 39.1%, while the probability of keeping rates unchanged is 60.9%.
Following two consecutive interest rate cuts by the Federal Reserve, policymakers are deeply divided. Some are more concerned about the weakness in the job market, while others are more worried about inflation.
Some analysts say that without stronger evidence that the job market needs urgent support, more cautious members of the Federal Reserve's interest rate setting committee may prevail at next month's policy meeting.
As Morgan Stanley made the aforementioned adjustments, several Federal Reserve officials spoke on Thursday about the prospects for a December rate cut.
Cleveland Fed President Beth Hammark warned that further rate cuts at this time could pose broad risks to the economy, including extending Qualcomm's debt repayment period . Inflationary cycles, stimulating risk appetite in financial markets, and encouraging high-risk lending, etc.
Federal Reserve Governor Barr stated that the central bank should be cautious when considering further interest rate cuts, given that inflation is still one percentage point above the target.
Federal Reserve Governor Milan, who has consistently supported sharp interest rate cuts, reiterated that he believes monetary policy is overly restrictive and that officials should adjust interest rates to near neutral levels, or to a level that neither slows nor stimulates the economy.
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(Article source: CLS)
