Market Analysis

Morgan Stanley has adjusted its outlook on interest rates, retracting its previous call for a June rate cut in light of stronger inflation and growth figures. The firm now anticipates the Federal Reserve to hike rates three times this year, aligning with the Fed's own projections.

Attributing the shift to recent economic data, Morgan Stanley has revised its growth forecast upwards, expecting GDP growth of 2.3% in Q4 of this year and 2.1% in 2025. They attribute this growth to a surge in immigration, which has boosted productivity without fueling inflation.

However, despite the optimistic growth outlook, Morgan Stanley maintains a dovish stance, predicting rate cuts at every meeting starting from July, aiming for rates to reach 3.625% by mid-2025. They argue that the labor market will transition from balance to oversupply this year, leading to higher unemployment rates and alleviating wage pressures.

Additionally, better-than-expected retail sales data further supports the notion of sustained consumer spending, bolstering economic growth prospects. Jefferies echoed this sentiment, suggesting that three consecutive quarters of GDP growth over 3% should quell expectations for rate cuts in the near future.

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