What is the Federal Reserve's plan for interest rates?

According to Morgan Stanley, the Federal Reserve is expected to begin cutting interest rates in September 2025, with further reductions anticipated through 2026.

How will the Fed's policy changes impact the U.S. economy?

The Fed's shift in focus toward labor market risks and the planned interest rate cuts are likely to have a significant impact on the U.S. economy, potentially stimulating growth and employment.

What prompted the Federal Reserve's change in monetary policy?

Fed Chair Jerome Powell's remarks at the Jackson Hole symposium signaled a shift in the central bank's priorities, with a greater emphasis on addressing labor market concerns.

Home / Business and Economy / Fed to Cut Rates Starting September, Morgan Stanley Predicts

Fed to Cut Rates Starting September, Morgan Stanley Predicts

26 Aug

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Summary

Morgan Stanley expects Fed to cut rates in September
Forecasts 25-basis-point cuts in September and December
Sees quarterly rate reductions through 2026 to 2.75%-3% range

Fed to Cut Rates Starting September, Morgan Stanley Predicts

As of August 26th, 2025, Morgan Stanley has updated its forecast for the U.S. Federal Reserve's monetary policy. The brokerage now expects the Fed to begin cutting interest rates in September, a shift from its previous view of the central bank staying on hold until March 2026.

In a note dated Monday, Morgan Stanley predicts a 25-basis-point rate cut next month, followed by another in December. The firm then foresees quarterly reductions through 2026, ultimately reaching a terminal rate of 2.75%-3.0%.

This revised outlook comes after Fed Chair Jerome Powell signaled a change in focus during his remarks at the Jackson Hole symposium. Powell indicated that the central bank will now be more attuned to risks in the labor market as it navigates the path forward for monetary policy.

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