Morgan Stanley Maintains No-Hike Forecast but Warns of Rate Increase if Jobless Rate Falls Below 4%

According to Morgan Stanley analyst Michael Gapen, on June 27, the bank maintained its forecast for no Fed rate hike this year, but warned that a jobless rate below 4% or sustained high inflation could trigger rate increases. Gapen noted that data since the June FOMC meeting has provided "modest reassurance" on the no-hike baseline, citing falling oil prices following U.S.-Iran agreements and expectations that tariff impacts are peaking.

Morgan Stanley projects Q4 core and headline PCE inflation at 3.0% and 3.2% respectively, below Fed participants' median expectations. The bank forecasts monthly job growth of 50,000 to 60,000 over summer, sufficient to keep unemployment roughly steady. Brent crude has fallen to approximately $72.6 per barrel.