Nick Timiraos, a well-known journalist for the Wall Street Journal known as the Federal Reserve's mouthpiece, wrote in his latest article that the Fed's rate cutting plans are constantly changing, with investors generally expecting a third consecutive rate cut this week. After this, they are preparing to slow down or even stop rate cuts.
Nick Timiraos states that Powell is trying to find the right positioning amid signs that the labor market is less volatile and inflation is slightly more stable than in September. Some officials have expressed doubts about continuing to cut rates, and those who strongly supported the previous two rate cuts are no longer so certain.
One option this week is to cut rates by 25 basis points and then strongly indicate through new economic forecasts that the central bank is ready to slow down the pace of rate cuts.
At the same time, Morgan Stanley predicts that expectations for pausing rate cuts will increase next year, with long-term U.S. Treasury bonds experiencing five consecutive declines, facing the worst week of the year. The market's expectations for the Federal Reserve's future policies have become more cautious, especially regarding the pace of rate cuts in 2025.
Morgan Stanley's forward-looking report points out that the dot plot to be released by the Federal Reserve next week will show that the median interest rate expectation for 2025 remains around 3.375%, lower than the market's expected lower range of 3.4% to 3.7%. Investors should pay attention to the declining trend of housing inflation, and the Federal Reserve may cut rates consecutively in December of this year and January of next year.
As the Federal Reserve meeting approaches, Morgan Stanley states that investors are focused on three key issues: expectations for the Fed's 2025 interest rate dot plot, Chairman Powell's stance on the pace of rate cuts, and the decision on the overnight reverse repurchase rate.
