Oil Prices and Inflation Primed To Push Back Federal Reserve Rate Cuts, Says Morgan Stanley Economist

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<a href="https://jpygbp.com/brent">Oil</a> Prices and Inflation Primed To Push Back Federal Reserve Rate Cuts, Says Morgan Stanley Economist

As I’m seeing it, the recent increase in oil prices, combined with inflation that’s proving stickier than expected, is leading me to believe the Federal Reserve might hold off on lowering interest rates for a bit longer than previously thought. That’s the view from our team at Morgan Stanley.

In the latest “Thoughts on the Market” podcast, Chief U.S. Economist Michael Gapen explained that the Federal Reserve will probably be careful with any interest rate changes, meaning expected cuts are likely to be delayed later in the year.

We now believe a more cautious approach is best, and interest rate cuts are likely to happen later in the year than we previously expected. After the recent Federal Open Market Committee meeting, we’ve adjusted our forecast. We initially predicted rate cuts in June and September, but now anticipate them in September and December.

Basically, because oil prices are going up and overall inflation isn’t decreasing as quickly as hoped, the Federal Reserve will probably need more time to be sure inflation is truly coming down. This means they’ll likely delay any plans to lower interest rates.

The Federal Reserve’s recent meeting made it clear that controlling inflation is their top priority, even more so than maintaining a strong job market. Although unemployment hasn’t changed much, job creation has slowed down, suggesting the economy might need some support later in the year.

Matthew Hornbach, who leads global macro strategy at Morgan Stanley, believes current conditions could present a good chance to invest in bonds.

If the economy and the Federal Reserve continue on their current path, the U.S. Treasury market could perform well for the rest of the year. Currently, the market doesn’t anticipate many interest rate cuts.

If the U.S. economy and Federal Reserve policy turn out as expected, investors in U.S. Treasury bonds should see positive returns. Even if those returns aren’t exactly what they anticipate, Treasuries have historically acted as a reliable safe haven, particularly when stocks and other riskier investments decline. Despite a recent drop in price, U.S. Treasuries continue to provide a good buffer for broader investment portfolios, and we anticipate they will perform well in this situation.

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2026-04-01 12:41