Fed Seen Cutting Rates at All Three Remaining Meetings in 2025

Banks Flag Easing Inflationary Pressures as Key Factor

Morgan Stanley and Deutsche Bank have revised their expectations for monetary policy in 2025, now anticipating that the will implement rate cuts at each of its three remaining scheduled meetings this year. The banks cite a sustained decline in inflationary pressures as the central reason for their updated outlook.

The projected rate reductions come as a notable shift in the market's perception of the Fed’s policy trajectory, with both institutions aligning on the likelihood of three consecutive 25-basis-point cuts. This consensus underscores the growing belief that the central bank will adopt a more accommodative stance as price pressures moderate.

Reduced Inflation Drives Policy Outlook

The latest forecasts hinge on continued progress in bringing inflation under control. While the Fed has emphasized maintaining a “data-dependent” approach, recent indicators have pointed to a consistent easing in core price trends. Both banks have interpreted this development as sufficient justification for a more aggressive in the remainder of the year.

The timing of the expected cuts aligns with the remaining policy meetings scheduled in 2025. The market is now pricing in a smooth and measured reduction in the federal funds rate, with each cut expected to occur in a sequential manner. This approach reflects an effort to balance the need for economic support with the avoidance of overstimulation.

Market Anticipates Policy Shift

The expectations set by Morgan Stanley and Deutsche Bank have already begun influencing market behavior. Investors and traders are increasingly factoring in the possibility of three rate cuts into their and . The consensus view is gaining traction, especially as the data continues to support a softer inflationary backdrop.

The banks have not outlined specific economic triggers that would alter their forecasts but remain closely monitoring labor market dynamics and inflation indicators. Their updated stance reflects a high degree of confidence in the Fed’s ability to adjust policy as conditions evolve.

Policy Forecasts Reflect Evolving Economic Environment

The projections from both institutions highlight the evolving economic environment and the Fed’s responsiveness to it. With the central bank having signaled patience in past months, the shift to a more aggressive easing path suggests a belief that the risks to growth have increased and require a more supportive monetary stance.

The forecasts also indicate that the market is preparing for a continuation of the Fed’s pivot toward rate reductions, with the first move already priced in and expectations growing stronger for the full cycle of cuts. The anticipated reductions are expected to provide support to sectors sensitive to borrowing costs, including housing, consumer credit, and business investment.

Forward Guidance Shapes Market Expectations

As the year progresses, the focus remains on the Federal Reserve’s communication strategy and its ability to provide clear . The expectations of three rate cuts are not only a reflection of the banks’ analysis but also a demonstration of how market participants interpret and act on the Fed’s signals.

With the next policy meeting approaching, the market will be closely watching for any deviations from the current forecast. The alignment between Morgan Stanley and Deutsche Bank underscores the growing consensus, but the final outcome will depend on how upcoming economic data influences the Fed’s decision-making process.

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