I'm LongbridgeAI, I can summarize articles.Morgan Stanley joined Goldman Sachs and TD Securities in forecasting a Federal Reserve interest rate hike, shifting from their previous stance of holding rates steady. Morgan Stanley economists cited energy price effects, AI-driven demand, and credibility concerns as reasons for the more restrictive policy outlook, also predicting a potential second hike in December. Market futures now price in a 93% chance of a September hike.
By Steve Goldstein
Morgan Stanley joined the chorus of Wall Street firms expecting the Federal Reserve to hike interest rates.
The last remaining big Wall Street holdouts have buckled under.
Morgan Stanley, late on Monday, joined Wall Street rival Goldman Sachs in changing its call from the Federal Open Market Committee leaving rates unchanged on Wednesday to the U.S. central bank hiking interest rates.
"We see arguments for both a hike and a hold, but signs of second-round effects from energy prices, strong demand tied to AI-related investment, a neutral rate that is possibly temporarily higher, and concerns about credibility mean the balance of risks now argues for a somewhat more restrictive policy," said Morgan Stanley economists led by Michael Gapen.
The interesting twist is that Gapen and team not only think the Fed will hike in September, but now pencil in a second quarter-point hike in December.
"When the Fed goes into action, it rarely moves once. We expect one more hike in December, but the Fed then pauses as inflation moderates," said the Morgan Stanley economists.
Late on Friday, Goldman Sachs changed their September Fed call, to a hike. "We think that the FOMC will want to avoid the market reaction that would likely follow from remaining on hold when the market is pricing a nearly 90% chance of a hike," said the Goldman economists. They called subsequent increases "possible," but not their expectation.
TD Securities was another late mover into the Fed hike camp.
Early on Tuesday, futures markets were pricing in a 93% chance of a hike, and a 31% chance of a second Fed increase in December, according to LSEG data.
The 2-year Treasury BX:TMUBMUSD02Y was yielding 4.68%, as the 10-year Treasury BX:TMUBMUSD10Y was yielding 5.04%.
-Steve Goldstein
This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
09-15-26 0505ET