Morgan Stanley and Deutsche Bank Predict How Much the Fed Will Cut Interest Rates

Morgan Stanley and Deutsche Bank both predicted the Fed would cut interest rates at its remaining three meetings this year. In separate reports, the two institutions said they expect 25 basis point cuts at the September, October, and December meetings.

Both institutions had previously projected only one rate cut in September and December. This week's data, which indicated a softening in inflationary pressures, contributed to the rise in expectations.

The Fed is expected to cut interest rates next week, marking the first time since a 25 basis point cut in December 2024, ushering in a new easing cycle. Chairman Jerome Powell stated last month that a rate cut was possible at the September 16-17 meeting, arguing that risks in the labor market were increasing.

Morgan Stanley stated that market conditions provide the Fed with room to shift to a “neutral” policy stance more quickly, predicting that four consecutive 25 basis point cuts will be made in meetings from September to January, with two additional cuts possible in April and July 2026.

Deutsche Bank Chief Economist Matthew Luzzetti stated that their current projections do not foresee any additional cuts for 2026, but that risks point to further cuts depending on the development of inflation and labor market data.

A similar expectation is being priced into the markets. According to CME FedWatch Tool data, the probability of a 25 basis point cut next week is seen as 95%, while a more aggressive 50 basis point cut is projected as 5%. Standard Chartered is the only institution in the market to expect a 50 basis point cut this month.

*This is not investment advice.