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Central BanksUpdated×4•Originally published 30 April 2026•Updated 1 May 2026•

1 min read

Morgan Stanley Pushes Back Fed Rate Cut Forecast to 2027 on Sticky Inflation

Key Facts

1Morgan Stanley revised its US monetary policy outlook, now expecting the Federal Reserve to start cutting interest rates in 2027 instead of 2026.

2The bank attributed the revision to persistent inflation, continued economic strength, and a sharply divided Federal Reserve policy committee.

3US Treasury yields climbed to one-month highs and the dollar strengthened following the Fed's decision to hold rates steady.

Morgan Stanley has significantly revised its outlook for US monetary policy, now projecting quarter-point rate cuts in January and March 2027. This updated forecast targets a terminal interest rate range of 3.0% to 3.25%, reflecting a more prolonged restrictive stance by the Federal Reserve. The shift comes as global brokerages abandon earlier easing expectations due to persistent inflation risks and a divided FOMC. Notably, the EUR/USD pair has decoupled from traditional rate differentials as geopolitical risks in the Middle East drive investors toward the US Dollar's safe-haven appeal. This geopolitical premium has overshadowed standard monetary policy drivers, maintaining pressure on the Euro. Analysts suggest that these combined factors of sticky inflation and global instability will continue to support a higher-for-longer rate environment.

about 1 month ago

Version History

Version 4about 1 month ago

What changed: Specific timing for 2027 cuts (January/March) and terminal rate targets (3.0-3.25%) were added, along with new analysis of EUR/USD decoupling due to geopolitical safe-haven flows.

Version 3about 1 month ago

What changed: Broadened the hawkish outlook to include global brokerages abandoning 2026 rate cut targets and highlighted the current split in easing forecasts.

Version 2about 1 month ago

What changed: The update specifies the timing of the forecast revision, linking it directly to the conclusion of the latest FOMC meeting.

Version 1about 1 month ago

What changed: Added geopolitical context regarding Middle East instability as a primary driver for persistent inflation and the delayed rate cut forecast.