Many U.S. banks anticipate that the Federal Reserve (Fed) will begin a gradual interest rate reduction from mid-2024, citing signs of economic weakness. According to economists at Morgan Stanley, the Fed is expected to initiate this rate reduction process from June 2024, with each reduction likely to be 25 basis points (0.25%), bringing the U.S. benchmark interest rate to around 2.375% by the end of 2025.

Morgan Stanley also forecasts that the U.S. won’t enter a recession but will require additional policy loosening due to a weakened economy.

They project that the unemployment rate will peak at 4.3% in 2025, higher than the Fed’s estimate of 4.1%. Economic growth and inflation are also predicted to be slower than the government’s official forecasts.

Ellen Zentner, Chief Economist at Morgan Stanley, emphasizes, Persistently high interest rates over an extended period could drag down economic activity. U.S. will experience a soft landing, but weak growth will raise concerns about the possibility of a recession.

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