Morgan Stanley Forecasts Two Fed Hikes as Inflation Persists

Morgan Stanley has joined other major Wall Street banks in adopting a more hawkish outlook on interest rates, forecasting US Federal Reserve rate hikes and another European Central Bank increase later this year.

The forecasts come ahead of policy decisions from the US Fed and the Bank of Japan this week, days after the ECB resumed its tightening cycle. Morgan Stanley expects the Fed to raise interest rates by 25 basis points at its September 15-16 meeting and deliver another quarter-point increase in December.

The brokerage cited 'slower and less convincing' disinflation as a reason for its forecast of two rate hikes this year, with US inflation running above target and oil prices trading above $100 a barrel. The ECB is also expected to signal further tightening before officials pause as inflation moderates.