Morgan Stanley Predicts Fed To Hold Rates This Year Despite Rate Hike Bets

Wall Street giant Morgan Stanley expects the Fed to leave rates unchanged throughout this year but warned of factors that could warrant a Fed rate hike. Fed President Neel Kashkari has also given his stance on monetary policy, warning that they could hike rates if inflation persists.

Morgan Stanley Predicts Fed Rate Hike Unlikely

The bank still predicts that the Fed will leave rates unchanged this year, but has warned of risks that could warrant a hike. They noted that hikes could return if the unemployment rate drops below 4% or inflation stays elevated.

As CoinGape reported, U.S. PCE inflation rose to 4.1%, its highest level since 2023, further raising concerns about inflation. However, oil prices have continued to fall since the U.S.-Iran peace deal, which is expected to ease the inflationary pressure on energy prices. This notably supports the view that a Fed rate hike is unlikely this year.

However, some experts still expect the Fed to hike rates this year. As CoinGape reported, Bank of America has predicted three Fed rate hikes this year, starting at the September FOMC meeting and continuing through the December FOMC meeting.

Crypto traders are also still pricing in the possibility of the Fed raising interest rates despite the U.S.-Iran peace deal. Polymarket data shows a 53% chance of a hike this year, which they predict could happen as soon as September.

Meanwhile, CME FedWatch data shows that traders are pricing a Fed rate hike at the September, October, and December FOMC meetings. There is a 47.3% chance of an interest rate increase at the September FOMC meeting.

Neel Kashkari Comments On Monetary Policy

Minneapolis Fed President Neel Kashkari revealed in an interview with Bloomberg that he was among those who penciled in a Fed rate hike this year. He said that the signs of widespread inflation were what prompted this move.

As CoinGape reported, the Fed leaned hawkish following the June FOMC meeting earlier this year. In their economic projections, nine of the 18 Fed officials penciled in at least one hike this year, while six of these nine expect multiple hikes this year.

Meanwhile, Kashkari remarked that his concern about inflation is not only about the U.S.-Iran war and the disruption in the global oil supply. “I’m concerned about inflation, and it’s not only tied to what’s happening in the Middle East, it’s just the impression of broader inflationary pressures in the economy,” he said.