Fed Could Start Easing in December as Data Trends Shift, According to Morgan Stanley
A shift in tone from central bankers and traders has Morgan Stanley leaning toward the idea that the U.S. Federal Reserve is finally ready to trim interest rates, and that the move could come sooner than markets were expecting.
- Morgan Stanley increasingly expects the first rate cut to arrive at December’s Fed meeting.
- Powell is likely to underline data-dependence rather than commit to aggressive easing.
- Additional cuts are projected for January and April if the data supports it.
Why December Now Looks More Probable
What changed, according to the firm, isn’t a sudden collapse in economic conditions but rather a gradual convergence between what policymakers are signalling and how markets are pricing risk.
Officials appear more comfortable entertaining rate cuts, even though dissenting votes are expected. Fed Chair Jerome Powell is still expected to temper enthusiasm, likely reminding investors that decisions hinge on the incoming data rather than preset schedules.
Morgan Stanley argues that this posture fits with the calendar: by late January, the Fed will have a more complete picture of fourth-quarter hiring trends, household spending, and inflation dynamics, meaning December may end up serving as a cautious first step rather than a declaration of victory.
This timing informs the firm’s expectation for additional rate reductions in the January and April meetings, assuming no surprise acceleration in prices or employment.
Holiday Spending Isn’t Painting a Simple Picture
The bank’s outlook is intertwined with consumption trends — an area that has produced mixed signals.
Initial Black Friday results looked strong, but Morgan Stanley was quick to note that early holiday numbers have rarely been reliable leading indicators for full-season sales. In other words, a strong opening weekend doesn’t guarantee a strong quarter.
More importantly, analysts noticed that nominal spending rose because goods cost more, not necessarily because consumers were buying more volume. This raises the possibility that demand is softer than headlines imply, which could justify policymakers leaning toward easing conditions.
What It All Means
Rather than portraying the Fed as turning dovish overnight, Morgan Stanley suggests a measured, data-driven path into rate cuts, beginning with a December trim and followed by further easing as economic clarity improves.
The story is less about urgency and more about sequencing — a Fed that wants room to manoeuvre because the economy may be weaker than the surface numbers suggest.
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