Morgan Stanley Sees Two Fed Hikes and ECB Move Amid Inflation Concerns

Morgan Stanley has become one of the latest major Wall Street banks to adopt a more hawkish outlook on interest rates, forecasting two U.S. Federal Reserve rate hikes and another European Central Bank increase later this year.

The forecasts come ahead of policy decisions from the U.S. Fed and the Bank of Japan this week, days after the ECB resumed its tightening cycle, keeping global markets focused on the outlook for interest rates.

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 after recent inflation readings came in above expectations.

The brokerage cited resilient euro zone growth and higher energy prices in forecasting another ECB rate hike in December, and now expects just one rate cut in 2027, in December.