Morgan Stanley Sees Two Fed Hikes, Another ECB Rate Increase Ahead

Morgan Stanley has joined its Wall Street peers in adopting a more hawkish stance on interest rates, predicting two Federal Reserve rate hikes and another European Central Bank increase later this year. The forecasts come ahead of key policy decisions from the Fed and the Bank of Japan this week.

The brokerage 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. Morgan Stanley cited 'disinflation process has been slower and less convincing' as a reason for its forecast.

The brokerage also expects the U.S. central bank to signal further tightening before officials pause as inflation moderates. It revised its ECB outlook to forecast an additional 25-basis-point increase in December, lifting the deposit rate to 2.75%, reversing its previous expectation that the central bank's tightening cycle had ended.