Synopsis:
Morgan Stanley expects the Fed to keep rates unchanged at the June FOMC meeting while maintaining a cautiously optimistic tone on growth. Despite elevated uncertainty from shifting trade and immigration policies, the soft May CPI has likely kept the Fed’s projection for two rate cuts in 2024 intact.
Key Points:
No Change in Policy Rate:
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Fed is expected to stay on hold, consistent with its “wait and see” stance.
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The FOMC statement is likely to continue describing economic activity as expanding “at a solid pace.”
Risks to the Mandate Acknowledged:
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Morgan Stanley anticipates the Fed will reiterate that risks to its dual mandate have risen, reflecting trade, fiscal, and labor market uncertainties.
"Two Cuts" Remain in the Dot Plot:
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Despite rising inflation-related concerns earlier this year, the softer May CPI print likely prevented a shift toward projecting only one cut.
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The SEP is expected to show two 25bp cuts in 2024, as in March.
Wait-and-See on Policy Shocks:
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Fed officials are unlikely to react immediately to changes in tariff or immigration policy, preferring to assess their actual economic impact over time.
Market Implications:
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The confirmation of two cuts could modestly weigh on USD and front-end yields, especially if Powell downplays the September hike probability.
Conclusion:
Morgan Stanley sees the June FOMC as a steady hand event: no change in rates, a solid growth assessment, and the preservation of two cuts in the 2024 dot plot. While the Fed remains on alert for shifting macro policy dynamics, soft inflation keeps the easing path alive—for now.
