Fed Rate Hikes to Fall Short of Market Expectations

Morgan Stanley is predicting that the Federal Reserve will raise interest rates in December and March of next year, but believes the total tightening will fall short of current market expectations.

The forecast comes after the Fed's September increase, which was expected by markets. However, markets are currently expecting 100 basis points of cumulative increases over the next 12 months.

The uncertainty surrounding the Fed's policy path is driven by factors such as economic growth, corporate bond issuance, and oil prices, leading to increased expectations for additional tightening. Morgan Stanley expects these factors to become clearer later this year, resulting in actual tightening falling short of market expectations.