The Fed is scheduled to meet on December 9-10 to decide the fate of the federal funds rate, although the odds of a 25 bps reduction have fallen considerably in recent weeks.
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Today, Morgan Stanley said that it no longer expects a rate cut next month, citing September’s nonfarm payrolls rising to 119,000 and beating the consensus economist estimate of 50,000. The firm now expects the Fed to cut rates in January, April, and June 2026, resulting in a target range of 3.00%-3.25%.
“The sharp and broad rebound in payrolls suggests the summertime slowdown might have been exaggerated,” strategists at Morgan Stanley said.
Goldman Says December Rate Cut ‘Remains Possible’
Goldman Sachs, on the other hand, still believes that a 25 bps reduction in December is likely. Goldman co-Head and co-CIO of Fixed Income and Liquidity Solutions Kay Haigh pointed to the unemployment rate rising to 4.4%, the highest level since October 2021, and inflation nearing the Fed’s target of 2%.
“A December cut remains possible given continued labor market softness as expressed by the unemployment rate,” wrote Haigh. Wells Fargo’s Sarah House is more confident that the Fed will cut rates in December, although the firm acknowledged that it would be a “close call” due to recent pushback from Fed officials.
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