Key Points:
- Morgan Stanley expects four rate cuts in 2025.
- Forecast follows changing economic data signals.
- Potential bullish impact on equities and crypto.
Morgan Stanley anticipates four consecutive rate cuts in 2025, starting next year, influenced by Federal Reserve signals and shifting economic data amid concerns of a weakening labor market.
These anticipated rate cuts could impact equities, bonds, and crypto markets, potentially boosting risk assets like Bitcoin and Ethereum due to expected increased liquidity and risk-seeking behavior.
Morgan Stanley now forecasts four consecutive 25-basis-point rate cuts by the Federal Reserve in 2025, commencing with their next meeting and extending into January. This expectation reflects an adaptive response to evolving economic indicators and Federal Reserve guidance.
The key figures driving these projections include Michael Gapen, Chief U.S. Economist, and Mike Wilson, Chief Investment Officer. Both have provided insights into the shifting economic landscape influenced by Federal Reserve Chair Jerome Powell’s recent addressing at Jackson Hole.
“The Federal Reserve is set to lower interest rates, and they’re set to do that even though inflation in the US is still well above target and it’s moving higher. … The Fed’s reason to lower interest rates despite strong markets … is the concern that the US labor market is weakening.” – Mike Wilson, CIO, Morgan Stanley
The anticipated rate cuts could lead to a bullish market reaction in equities as lower rates typically encourage economic growth. However, concerns regarding a weak labor market persist, influencing monetary policy adjustments, according to market analysts.
Financial markets are preemptively adjusting asset valuations, with implications for equities, bonds, and crypto assets. Investors see potential in risk assets, anticipating increased liquidity and a weaker U.S. dollar as a backdrop to the rate adjustments.
The past correlation between Fed rate cuts and market performance suggests varied outcomes. Success hinges on economic stability concurrent with easing. Institutional investment patterns may shift markedly, impacting assets like BTC and ETH amid prospective policy changes.
Financial analysts suggest this monetary easing could coincide with increased capital flows into DeFi and major cryptocurrencies. Historical data aligns with these predictions, correlating rate cuts with increased liquidity and risk-on sentiment in financial markets.
